TEI comments on BEPS Action 10: Low Value-Adding Services.

• Position: TECHNICAL SUBMISSIONS

On January 13, TEI submitted comments to the OECD on its Public Discussion Draft regarding BEPS Action 10: Proposed Modifications to Chapter VII of the Transfer Pricing Guidelines Relating to Low Value-Adding Intra-Group Services. TEI commended the OECD for its approach in the Discussion Draft as a welcome simplification to transfer pricing rules for intra-group services. TEI's recommendations included providing additional details and clarification in certain areas, such as allocation of senior management services and employee time, as well as shareholder and stewardship services. TEI's comments were prepared under the aegis of TEI's European Direct Tax Committee, whose chair is Nick Hasenoehrl. Benjamin R. Shreck, TEI Tax Counsel, coordinated the preparation of TEI's comments.

On July 19, 2013, the OECD published an Action Plan on Base Erosion and Profit Shifting (hereinafter the Action Plan or the Plan) setting forth 15 actions the OECD will undertake to address a series of issues that contribute to the perception that individual countries' tax bases are being eroded or profits shifted improperly. Pursuant to Action 10 of the Plan, "Other high-risk transactions," the OECD issued a public discussion draft on November 3, 2014 entitled Proposed Modifications to Chapter VII of the Transfer Pricing Guidelines Relating to Low Value-Adding Intra-Group Services (hereinafter the Discussion Draft or Draft). The Discussion Draft sets forth a simplified approach for low value-added services to achieve a balance between appropriate charges for low value-added services and head office expenses and the need to protect the tax base of payor countries.

The OECD solicited comments from interested parties no later than January 14, 2015. On behalf of Tax Executives Institute, Inc. (TEI), I am pleased to respond to the OECD's request for comments.

TEI Background

TEI was founded in 1944 to serve the needs of business tax professionals. (1) Today, the organisation has 56 chapters in Europe, North and South America, and Asia. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. Our nearly 7,000 individual members represent over 3,000 of the largest companies in the world.

TEI Comments

TEI commends the OECD for its work on the Discussion Draft. Overall, the Draft is a significant positive step forward and sets forth a balanced approach to transfer pricing for low value-added services. Multinational enterprises (MNEs) spend a substantial amount of time and effort to allocate intra-group service charges in a manner that satisfies tax authorities around the world. This is a difficult task because of the tension between payor and payee jurisdictions and a significant amount of effort is expended on administering low value-added services for what is, in the end, not a substantial amount of tax. The Discussion Draft sets forth sensible guidelines...