ICC Comments on OECD Discussion Draft on Chapter VII of the Transfer Pricing Guidelines “Transfer Pricing of Financial Transactions” – BEPS Actions 8-10
The OECD Discussion Draft provides guidance on the application of the principles of Section D.1 of Chapter I of the OECD Transfer Pricing Guidelines (TPG) to financial transactions. The draft also addresses specific issues related to the pricing of financial transactions such as treasury functions, intra-group loans, cash pooling, hedging, guarantees and captive insurance.
The key issue that runs through several aspects of the paper is whether the arm‘s length principle, including a full functional analysis and delineation of the transaction, should be applied when analysing the conditions surrounding intercompany financial transactions.
ICC supports the OECD position that “the arm’s length principle should govern the evaluation of transfer prices among associated enterprises”. This position is viewed as the best way to avoid double taxation and therefore encourage cross-border trade and investment.
ICC also supports the OECD‘s position when it states, at para 1.6 of the guidelines, that the “separate entity approach treats the members of an MNE group as if they were independent entities”.
ICC would welcome further examples to help clarify the application of the arm’s length principle, and believes that the OECD should clarify whether its transfer pricing guidance for financial transactions should apply retroactively.
ICC welcomed the opportunity to comment on the OECD Discussion Draft on “Transfer Pricing of Financial Transactions” and to this end has provided comments for the OECD’s consideration.