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OECD’s Marlies de Ruiter admits need to improve transfer pricing guidelines, but stands by ALP

Marlies de Ruiter, head of the tax treaty, transfer pricing and financial transactions division at the OECD, agrees with tax justice activists that the transfer pricing guidelines could work better, but she remains loyal to the arm’s-length principle (ALP).


Setting out the OECD’s stall in a room full of its fiercest critics was always going to be a challenge for de Ruiter, who spoke at a conference organised by the Tax Justice Network and the Finnish Foreign Ministry in Helsinki last week.

Speaking to delegates at the conference - Transfer Pricing: Alternative Methods of Taxation of Multinationals - De Ruiter, was insistent that the OECD facilitates better policies for better lives, by helping governments stimulate growth and equality.

“Double taxation and less than single taxation pose a risk to trade and thus to growth and equality,” said de Ruiter. “A global transfer pricing standard is key in preventing double and less than single taxation.”

For the OECD, this means the ALP, which has been adopted by more than 100 developed, emerging and developing countries, and the OECD’s transfer pricing guidelines (TPG), which she said are continuously revised and updated with new guidance to cope with the significant changes and challenges posed by an increasingly globalised economy.

De Ruiter did accept, however, that the TPG are too complex and need to be simplified and that the ALP is not the end of the story.

“The ALP provides a tool to counteract base erosion and profit shifting, but it wouldn’t be effective alone,” she said.

Inclusive dialogue

De Ruiter wants to see an inclusive dialogue with OECD and non-OECD countries on the TPG. One particular criticism of the TPG is they do not serve the interests of developing countries, which often lack the capacity to enforce them. De Ruiter was keen to point out that the Global Forum on Transfer Pricing, which had its first meeting this year, has 12 non-OECD countries on its steering committee, while the Task Force on Tax and Development, which includes civil society, OECD and non-OECD countries, business and regional tax organisations, is working on capacity building.

“UN is observer to the OECD Committee on Fiscal Affairs, but it’s a shame their resources are too limited to observe Working Party 6,” she said.

A crucial part of the OECD’s mission is making the maximum use of limited resources through partnerships with other international and regional organisations such as the African Tax Administration Forum (ATAF).

“There’s a huge need for transfer pricing knowledge and we can only meet a small part of that,” de Ruiter said.

The OECD official was particularly proud of the OECD’s efforts to give a head start to Tax Inspectors Without Borders, an independent foundation to provide developing countries with access to experienced international tax inspectors and helping the administrations learn on the job through placements and missions. The OECD hopes the initiative will be launched next year.


Despite the OECD’s work, de Ruiter agrees with activists that base erosion is a significant problem. Among the core issues she identified were the use of hybrid entities and low tax jurisdictions, shifting intangibles, transfer mispricing and a lack of information and resources to tackle it.

“The public opinion is that multinational enterprises such as Apple and Google are not paying their fair share,” she said. “In these examples it is clear that they are trying to shift their profits and it’s not fair.”

“Both developed and developing countries are affected by the issue, but the impact is very different,” de Ruiter added. “It’s the same problem, but it does not necessarily have the same solutions.”

Not everyone at the conference was satisfied with the OECD’s solutions, however. Sol Picciotto, emeritus professor of law at Lancaster University, criticised the organisation’s dominance over the debate on transfer pricing.

“In the 1960s, the UN Tax Committee was set up, but it follows in the slip stream of the OECD,” said Picciotto. “The OECD has a very powerful committee, while the UN Tax Committee has 2.5 [two full time and one part time] staff. The OECD is trying to set a global standard, but the UN doesn’t even have the resources to observe your work.”

David Spencer, senior adviser to the Tax Justice Network, welcomed some of the progress made by the OECD, including abandoning its previous opposition to safe harbour rules, but was negative overall on the dominance of the OECD and EU thinking on transfer pricing.

De Ruiter accepted that application of the OECD’s guidelines is not easy and that they need to be simplified, but said that the business reality is complex.

“The TPG are trying to translate the complexity of business into how to allocate profits,” she said.

De Ruiter gave a strong defence of the TPG and the ALP, but it is unlikely to dampen criticism or allay the fears of development activists that the OECD standards are failing developing countries. The question now is whether they can be successfully reformed and adapted as de Ruiter would like, or whether they must be replaced entirely.

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