OECD Draft Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

• Position: Organization for Economic Cooperation and Development - Tax Executives Institute's International Tax Committee

On December 2, 1994, Tax Executives Institute submitted the following comments to the Organisation for Economic Co-Operation and Development in Paris, France, concerning the organizations draft transfer pricing guidelines. The comments were developed under the aegis of TEI's International Tax Committee, whose chair is Philip J. Bergquist of Apple Computer, Inc. Contributing materially to the preparation of the comments were Lisa Peschcke-Koedt of Hewlett-Packard Company and Roger D. Wheeler of General Motors Corporation.

This letter responds to the request for comment on the discussion draft entitled, OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, Part I: Principles and Methods (hereinafter referred to as the "Draft Guidelines"), which was released earlier this year, by the Committee on Fiscal Affairs of the Organisation for Economic Co-operation and Development.

As the principal organization of corporate tax professionals in North America, Tax Executives Institute (TEI) commends the Committee on Fiscal Affairs for its work on the Draft Guidelines. We agree that there is a need to update the OECD's extant transfer pricing reports. We also agree that -

[C]ountries need to reconcile their legitimate right to tax the profits of a taxpayer based upon income and expenses that can reasonably be considered to arise within their territory with the need to avoid taxation of the same item of income by more than one tax jurisdiction.

Given the growth in global trading by multinational enterprises and the increased globalization of national economies, the need for greater uniformity in transfer pricing rules and interpretations is manifest. Differing requirements exacerbate the compliance burden on both taxpayers and tax administrations, create barriers to cross-border transactions, and lead to double taxation. Inconsistencies among taxing jurisdictions will invariably lead to increased transfer pricing disputes between taxpayers and tax administrations, as well as tax authorities in different countries, and consequently should be minimized. The OECD's effort to establish reasonable guidelines is a major step in the right direction toward minimizing tax disputes and the resultant double taxation.

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. Our approximately 5,000 members represent nearly 3,000 of the leading corporations in the United States and Canada. TEI is a non-profit organization that represents a cross-section of the business community; it is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and governments alike. As a professional association, TEI is firmly committed to maintaining tax systems that work - systems that are administrable and with which taxpayers can comply.

A substantial number of TEI members work for multinational companies that engage in international...