ICC Document & publication

ICC comments on the OECD Discussion Draft on BEPS Action 10: The Use of Profit Splits in the Context of Global Value Chains (2015)

In the context of the G20 endorsed OECD/BEPS Action Plan, ICC provided its feedback on the OECD’s Discussion Draft on Action 10 on the use of profit splits within the context of global value chains.

ICC submitted high level and fundamental comments to the OECD’s Discussion Draft on Action 10: the Use of Profit Splits in the Context of Global Value Chains of the OECD Base Erosion and Profit Shifting (BEPS) Action Plan.

BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes and/or to shift profits to locations where there is little or no real activity but the taxes are low. This results in little or no overall corporate tax being paid.

OECD’s BEPS Action 10 focuses on the need for rules that prevent profit shifting by transactions which would normally not, or only very rarely, occur between third parties. To this end, the OECD proposes to adopt transfer pricing rules or special measures that would clarify the application of transfer pricing methods, in particular profit splits, in the context of global value chains.

As the world business organization ICC commends the efforts of the OECD in providing further guidance on the application of profit split methodologies. The alignment of value creation and profits, if truly representative of arm’s length outcomes, may be an important step in eliminating BEPS and enhancing certainty for tax administrations and taxpayers alike by reducing the likelihood of tax disputes and double taxation.

However, ICC expresses concern about the increased application of the transactional profit split method, as it may entail a departure from the arm’s length principle and result in additional subjectivity and complexity for taxpayers and tax administrations alike – leading to an increased compliance burden and a higher risk of double taxation, and, consequently, tax disputes.

In its response to the OECD Discussion Drafts, ICC underlines that the requirement to first consider transactional profit splits in the context of the multilateral instrument, would help to prevent double taxation while enhancing of cross-border trade, foreign direct investment and economic growth.