DRAFT REVISED GUIDANCE ON THE TRANSACTIONAL PROFIT SPLIT METHOD (TO REPLACE PART III SECTION C OF CHAPTER II OF THE 2010 TRANSFER PRICING GUIDELINES)
Source: OECD Discussion Draft, 22 June 2017. Deadline for responses – 15 September 2017
Public comments are invited on this discussion draft which deals with the clarification and strengthening of the guidance on the transactional profit split method, as set out in the BEPS Actions 8-10, 2015 Final Report.
This draft sets out the text of proposed revised guidance on the application of the transactional profit split method, together with a number of questions, listed below.
The discussion draft necessarily concentrates on the guidance proposed to be included in Chapter II, but respondents are reminded that such guidance is provided within a framework of other relevant guidance. The discussion of the transactional profit split method in this discussion draft should not be taken to imply any change to this wider framework.
Responses are invited to the questions listed below, but commentators should feel able to comment on any points that may not be specifically covered by those questions.
Comments should be submitted by 15 September 2017 and should be sent by email to TransferPricing@oecd.org in Word format. They should be addressed to the Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA. Comments in excess of ten pages should attach an executive summary limited to two pages.
Specific questions are as follows:
1 – The discussion draft addresses situations in which profit splits of anticipated profits or profit splits of actual profits are appropriate. Where it is established that the transactional profit split is the most appropriate method, please comment on the factors which should be taken into account in determining whether a profit split of anticipated profits or a profit split of actual profits should be used.
2 – A number of profit splitting factors are addressed in the discussion draft. Comments are particularly invited on:
a – Whether the existing references to capital or capital employed as a potential profit splitting factor in the current guidance should be retained, and if so, what factors need to be taken into account for its selection and application as a reliable profit splitting factor.
b – Should headcount of similarly skilled and competent employees be included as a potential profit splitting factor, and if so, in what circumstances would it be relevant?
c – Given the existing guidance in Chapters I and IX of the Transfer Pricing Guidelines, should adjustments for purchasing power parity be made for profit splitting factor amounts, and if so, in what circumstances?
d – What other profit splitting factors should be included in the guidance, and in what circumstances?
3 – Additional examples of scenarios in which a transactional profit split is found to be the most appropriate method due to the high level of integration of the business operations are sought, together with an explanation as to the reasoning thereto.