OECD Transfer Pricing Guidelines for OECD Transfer …

1 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax AdministrationsJuly 2017 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax AdministrationsJ u ly 2017 OECD Transfer PricingGuidelinesfor MultinationalEnterprises and TaxAdministrationsJULY 2017 This work is published under the responsibility of the Secretary-General of theOECD. The opinions expressed and arguments employed herein do notnecessarily reflect the official views of OECD member document and any map included herein are without prejudice to the statusof or sovereignty over any territory, to the delimitation of international frontiersand boundaries and to the name of any territory, city or cite this publication as:OECD (2017), OECD Transfer Pricing Guidelines for Multinational Enterprises and TaxAdministrations 2017, OECD Publishing, 978-92-64-26273-7 (print)ISBN 978-92-64-26512-7 (PDF)Series.

2 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax AdministrationsISSN 2076-9709 (print)ISSN 2076-9717 (online)The statistical data for Israel are supplied by and under the responsibility of the relevant Israeliauthorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights,East Jerusalem and Israeli settlements in the West Bank under the terms of international to OECD publications may be found on line OECD 2017 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites andteaching materials, provided that suitable acknowledgement of OECD as source and copyright owner is requests for public or commercial use and translation rights should be submitted to for permission to photocopy portions of this material for public or commercial use shall be addresseddirectly to the Copyright Clearance Center (CCC) at or the Centre fran ais d exploitation dudroit de copie (CFC) at 3 OECD Transfer Pricing Guidelines OECD 2017 Foreword These Guidelines are a revision of the OECD Report Transfer Pricing and Multinational Enterprises (1979).

3 They were approved in their original version by the Committee on Fiscal Affairs on 27 June 1995 and by the OECD Council for publication on 13 July 1995. Since their original version, these Guidelines have been supplemented: By the report on intangible property and services, adopted by the Committee on Fiscal Affairs on 23 January 1996 [DAFFE/CFA(96)2] and noted by the Council on 11 April 1996 [C(96)46], incorporated in Chapters VI and VII; By the report on cost contribution arrangements, adopted by the Committee on Fiscal Affairs on 25 June 1997 [DAFFE/CFA(97)27] and noted by the Council on 24 July 1997 [C(97)144], incorporated in Chapter VIII.

4 By the report on the Guidelines for monitoring procedures on the OECD Transfer Pricing Guidelines and the involvement of the business community [DAFFE/CFA/WD(97)11/REV1], adopted by the Committee on Fiscal Affairs on 24 June 1997 and noted by the Council on 23 October 1997 [C(97)196], incorporated in the annexes; By the report on the Guidelines for conducting advance Pricing arrangements under the mutual agreement procedure, adopted by the Committee on Fiscal Affairs on 30 June 1999 [DAFFE/CFA(99)31] and noted by the Council on 28 October 1999 [C(99)138], incorporated in the annexes; By the report on the Transfer Pricing aspects of business restructurings, adopted by the Committee on Fiscal Affairs on 22 June 2010 [CTPA/CFA(2010)46] and approved by the Council on 22 July 2010 [Annex I to C(2010)99], incorporated in Chapter IX.

5 4 FOREWORD OECD Transfer Pricing Guidelines OECD 2017 In addition, these Guidelines have been modified : By an update of Chapter IV, adopted by the Committee on Fiscal Affairs on 6 June 2008 [CTPA/CFA(2008)30/REV1] and an update of the Foreword and of the Preface, adopted by the Committee on Fiscal Affairs on 22 June 2009 [CTPA/CFA(2009)51/REV1], approved by the Council on 16 July 2009 [C(2009)88]; By a revision of Chapters I-III, adopted by the Committee on Fiscal Affairs on 22 June 2010 [CTPA/CFA(2010)55] and approved by the Council on 22 July 2010 [Annex I to C(2010)99]; and By an update of the Foreword, of the Preface, of the Glossary, of Chapters IV-VIII and of the annexes, adopted by the Committee on Fiscal Affairs on 22 June 2010 [CTPA/CFA(2010)47] and approved by the Council on 22 July 2010 [Annex I to C(2010)99].

6 By a revision of Section E on safe harbours in Chapter IV, and the addition of another Annex to this Chapter including three sample Memoranda of Understanding to establish bilateral safe harbours, adopted by the Committee on Fiscal Affairs on 26 April 2013 [CTPA/CFA(2013)23] and approved by the Council on 16 May 2013 [C(2013)69]. By a revision of Chapters I, II, V-VIII by the Report on BEPS Actions 8-10 Aligning Transfer Pricing Outcomes with Value Creation and the Report on BEPS Action 13, Transfer Pricing Documentation and Country-by-Country Reporting, endorsed by the Council on 1 October 2015 [C(2015)125/ADD8 and C(2015)125/ADD11].

7 By a revision of Chapter IX adopted by the Committee on Fiscal Affairs on 31 December 2016 [CTPA/CFA/NOE2(2016)76] and approved by the Council on 3 April 2017 [C(2017)37]. By an update of the Foreword, of the Preface, of the Glossary, of Chapters I-IV and of the annexes, adopted by the Committee on Fiscal Affairs on 19 May 2017 [CTPA/CFA/NOE2(2017)21]. These Guidelines will continue to be supplemented with additional guidance addressing other aspects of Transfer Pricing and will be periodically reviewed and revised on an ongoing basis. TABLE OF CONTENTS 5 OECD Transfer Pricing Guidelines OECD 2017 Table of Contents Foreword .. 3 15 Abbreviations and Acronyms.

8 21 Glossary .. 23 Chapter I: The Arm's Length Principle .. 33 A. Introduction .. 33 B. Statement of the arm s length principle .. 35 Article 9 of the OECD Model Tax Convention .. 35 Maintaining the arm s length principle as the international consensus .. 38 C. A non-arm s-length approach: global formulary apportionment .. 39 Background and description of approach .. 39 Comparison with the arm's length principle .. 39 Rejection of non-arm's-length 43 D. Guidance for applying the arm s length 43 Identifying the commercial or financial relations .. 43 Recognition of the accurately delineated transaction .. 77 Losses .. 80 The effect of government policies .. 81 Use of customs valuations .. 83 Location savings and other local market features.

9 84 Assembled 88 MNE group synergies .. 89 6 TABLE OF CONTENTS OECD Transfer Pricing Guidelines OECD 2017 Chapter II: Transfer Pricing Methods .. 97 Part I: Selection of the Transfer Pricing method .. 97 A. Selection of the most appropriate Transfer Pricing method to the circumstances of the case .. 97 B. Use of more than one method .. 100 Part II: Traditional transaction methods .. 101 A. Introduction .. 101 B. Comparable uncontrolled price method .. 101 In 101 Examples of the application of the CUP method .. 104 C. Resale price method .. 105 In 105 Examples of the application of the resale price method .. 110 D. Cost plus 111 In 111 Examples of the application of the cost plus method.

10 116 Part III: Transactional profit methods .. 117 A. Introduction .. 117 B. Transactional net margin method .. 117 In 117 Strengths and weaknesses .. 118 Guidance for application .. 120 Examples of the application of the transactional net margin method .. 132 C. Transactional profit split method .. 133 In 133 Strengths and weaknesses .. 133 Guidance for application .. 135 D. Conclusions on transactional profit methods .. 145 TABLE OF CONTENTS 7 OECD Transfer Pricing Guidelines OECD 2017 Chapter III: Comparability Analysis .. 147 A. Performing a comparability 147 Typical process .. 148 Broad-based analysis of the taxpayer s circumstances.