ICC POLICY STATEMENT

ICC policy statement on substance requirements for transfer pricing

ICC calls for a well-balanced application of existing economic substance requirements in tax and transfer pricing.

In light of recent international tax developments, namely the OECD Base Erosion and Profit Shifting (BEPS) project, the notion of economic substance has attracted attention in a number of countries, especially given the lack of standards on how it can be understood in the context of BEPS.

The challenge with any economic substance requirements is their factual nature and the varying interpretations of their content. Therefore, inconsistent definitions and interpretations of the notion as a result of the absence of standards can lead to business being faced with an ensuing risk of uncertainty and conflict.

In view of this, ICC has developed a policy statement that provides an overview of the problems and obstacles generated by these discrepancies while emphasizing the importance of applying the existing legislative framework on substance requirements in a consistent and well-balanced manner. This can help avoid double taxation as well as obstacles to cross-border trade and investment.

The ICC statement on substance requirements for transfer pricing provides recommendations for a way forward, calling for a uniform application of existing definitions and standards on economic substance, an aligned and overarching application of existing principles as well as the establishment of appropriate dispute resolution mechanisms. ICC will continue to work on economic substance, to ensure that the needs of business are served in promoting cross-border trade and economic growth.