This content is from: Transfer Pricing

BIAC addresses OECD with closing remarks on transfer pricing consultation

Will Morris, chairman of BIAC’s (business advisory arm to the OECD) tax and fiscal policy committee, closed the OECD’s public transfer pricing consultation in Paris yesterday by praising the organisation’s inclusion of civil society, reminding the OECD to turn to BIAC for help and comparing BEPS to a new world for transfer pricing.

Thank you again Madam Chair for inviting business in general, and BIAC in particular, to be present at this consultation. And let me also say that I think the consultation has been enhanced by the presence of civil society and academics.

These are important issues of public interest, and having the full range of stakeholders present, while something of a new experience for us in business, is also a beneficial one. Thanks also to all of the country delegates for your contributions both formal and informal. And finally thanks to the Secretariat, and especially to Joe. This really is the way that the OECD should operate.

Rather than try to touch on every aspect of our two days of discussions, I want to focus briefly instead on four topics. The first is country by country reporting. As I said, business understands that this is coming and our principal concern is to design something that provides you with information in a form that is both useful and novel for you, without finding ourselves burdened with yet another requirement for extensive gathering of information. Especially, if that does not, in the end, do much for you. I came away from this section of the discussion hopeful that we can make this one work.

On transfer pricing documentation, I am still a little torn. There was, I think, a clear agreement on every side that a huge amount of unnecessary work goes on in this area, with the filing of staggering amounts of information, much of which is not even read, far less used effectively by governments. And yet, I am worried that the consultation document may still lead us in the direction of more information reporting, not less. This will happen if we cannot sufficiently standardise the masterfile in a way that satisfies most countries, thereby removing the need for significant local country variations. I think we need to work really hard on this. More information is not the answer; smarter information is. And for that, we need to integrate transfer pricing documentation and transfer pricing risk assessment much more closely than they have been up to now.

On intangibles, we have had several detailed discussions – some of which, for a transfer pricing amateur like myself, went way over my head. What I did take away, however, especially when it comes to valuing and/or allocating the residual attributable to an intangible, is that we have a problem. And it’s a problem that we’re currently trying to cover up with language – but I’m not sure that works. I believe, in many areas, that the arm’s-length-standard continues to work, and I also believe that there are good reasons for it being used as the default, or the starting point, in all areas.

However, where it doesn’t work, we shouldn’t try to cover that up by saying it does and then coming up with yet another ad hoc “improvement” to the arm’s-length-standard. There may, in some cases, be very good reasons for diverging from the arm’s-length-standard. But, if we’re going to do that, we should do it very clearly, and with full agreement from a broad range of countries that this is a different taxing principle. We do ourselves no favours by classifying it as just another arm’s-length-standard method that may or may not work in a hierarchy of methods that businesses and different countries may choose, or not, to adopt. That only leads to more and more double taxation as countries go their different ways. We shouldn’t necessarily be scared of special methods. The arm’s-length-standard is the default, and the case needs to be made for deviating from it. But if that case can be made, then let’s do it transparently, and with a clear articulation of the taxing principle, so that the desired outcome is clear to all parties.

Finally, on BEPS I’ve already said so much elsewhere that I’m not sure you want to hear more here. So let me confine myself to a high level comment. BEPS and this intangibles project in a way represent the clash of the new world and the old – between a high-level political project on a short time fuse, and a profoundly technical multi-year project. BEPS, at least for me, represents an opportunity to re-examine principles, and potentially reach an agreement which reunites the OECD with the BRICS while also taking into account less-developed countries. But this intangibles project also demonstrates the deep, deep technical expertise that governments and business can bring in this forum. This is both your opportunity and ours; but also your challenge and ours. All I want to make clear is that we want to help bring both the new aspects and older aspects of this together, and we will do whatever you ask of us, whenever and wherever. So please, ask us for help; it will be given willingly and constructively.

I’d like, however, to finish very briefly on the note I always end on. And that’s by asking the “what are we really doing here?” question. In the end, we all share a common interest – all of the stakeholders here – and that is in more sustainable cross border trade and investment which creates more wealth, more growth and more jobs. We may disagree on aspects of taxation; we may even disagree on the appropriate level of taxation. But I think we all agree that the tax system should raise revenue in the ways that are least harmful to growth. Intangibles are a critical part of the global economy. As I said yesterday morning, we acknowledge that in some cases the rules have not have kept pace with globalisation. We are committed to working with you on that, to help craft rules that do. But let’s never take our eye off the central fact that tax should be raised in the way that least inhibits growth - because that's what all of our stakeholders, wherever we’re from, ultimately look to us for.

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