ICC Document & publication

ICC Comments to the OECD Discussion Draft BEPS Action 8 “Hard to value intangibles” (2015)

In the context of the G20 endorsed OECD/BEPS Action Plan, the International Chamber of Commerce (ICC) provided feedback on the OECD Discussion Draft on Action 8 centred on hard to value intangibles.

Base Erosion and Profit Shifting (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.

In its Discussion Draft the OECD proposes an approach to hard-to-value intangibles and revisions to the guidance in Section D.3 of the 2014 BEPS Report “Guidance on Transfer Pricing Aspects of Intangibles”.

The guidance explains the difficulties faced by tax administrations in verifying the arm’s length basis on which pricing was determined by taxpayers for transactions involving a specific category of intangibles. It proposes an approach based on the determination of the arm’s length pricing arrangements that would have been made between independent enterprises at the time of the transaction.

In order to preserve consistency with the arm’s length principle, in its response ICC notes that the special measures should not go beyond refutable presumptions. In addition, in the case of transfer of rights, ICC recommends acknowledging that the parties will first monitor results that are significantly different from what was anticipated in order to assess whether the change is permanent or temporary. In addition, independent parties are more likely to modify pricing prospectively rather than retroactively.

In its comments, ICC highlights international business concerns on the significant burden the draft guidance puts on taxpayers – requiring detailed, accurate and comprehensive ex-ante documentation. This raises particular problems for developing countries as burdensome processes will effect tax administrations and small and medium enterprises (SMEs). ICC therefore urges the OECD to explicitly mention in its guidance the fact that a number of hard-to-value intangibles can be more easily priced using one-sided methods when comparables can be used to set the remuneration of the simplest party in the transaction.