TEI comments to OECD on administrative aspects of transfer pricing.

• Position: Tax Executives Institute, Organisation for Economic Co-operation and Development

July 15, 2011

On July 15, 2011, TEI President Paul O'Connor filed a letter with the Organisation for Economic Co-operation and Development on the administrative aspects of transfer pricing. The comments were file under the aegis of the Institute's European Direct Tax Committee whose chair is An Theeuwes of Royal Dutch Shell Petroleum. Contributing substantially to the development of the comments was Johann Muller of AP Moeller Maersk Group. Also contributing were Alain Berlier of Givaudan Flavors Corporation, Alexander Kolbl of General Dynamics Corporation, Karina O of TELUS Corporation, Anthony O'Donnell of EMD Serono, and Peter H. Taylor of Dupont De Nemours International. Jeffery P. Rasmussen, TEI Senior Tax Counsel, serves as legal staff liaison to the European Direct Tax Committee, and coordinated the preparation of the submission.

On 9 March 2011, the Organisation for Economic Co-operation and Development (OECD) Committee on Fiscal Affairs (CFA) launched a project on the administrative aspects of transfer pricing, including a review of practices that may be implemented by countries to optimise the use of taxpayers' and tax administrations' resources. The CFA invited comments on various issues including experience with extant forms of transfer pricing administrative simplification measures and their effectiveness; the different types of "safe harbours" and how best to describe and differentiate among them; and the advantages and disadvantages of safe harbour rules and other forms of transfer pricing administrative simplification, from both practical and policy perspectives. On behalf of Tax Executives Institute, I am pleased to respond to the OECD's request for comments.

TEI Background

Tax Executives Institute was founded in 1944 to serve the professional needs of business tax professionals. Today, the organisation has 56 chapters in North America, Europe, and Asia. As the preeminent international association of business 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 7,000 members represent 3,000 of the largest companies in the United States, Canada, Europe, and Asia.

Project Background and Objectives

The OECD Transfer Pricing Guidelines (TPG) for Multinational Enterprises and Tax Administrations provide internationally accepted guidance on the application of the arm's length principle set out in Article 9 of the OECD and UN Model Tax Conventions. The TPG were originally approved in 1995 and substantially revised in 2010. With the approval of the updated guidelines, the CFA launched this project on the administrative aspects of transfer pricing, which includes a review of techniques that have been implemented by countries to optimise the use of taxpayers' and tax administrations' resources. In connection with the project, the OECD surveyed Member and Observer countries on their use of safe harbours. The results of the survey were recently published. (1)

Paragraph 2 of that survey notes that "while there is a need for the development of increasingly sophisticated guidance for complex transactions, it is also essential to promote a cost-effective use of taxpayers' and tax administrations" resources for improved compliance and enforcement processes. In effect, countries often have scarce administrative resources to enforce transfer pricing rules. At the same time, taxpayers face increasing compliance requirements and transfer pricing audit activities worldwide." TEI concurs and believes that governments should direct compliance requirements and enforcement efforts to the transactions they deem to be the riskiest, largest, and most complex.

TEI commends the OECD for undertaking this project. For multinational enterprises of any scope, compliance with myriad transfer pricing requirements, especially documentation rules, is one of, if not, the most burdensome compliance challenge faced. The multiple, highly nuanced, and sometimes conflicting interpretations of the arm's length standard reflected in the substantive transfer-pricing rules and administrative requirements of various jurisdictions impose significant and inconsistent compliance burdens on taxpayers. TEI supports the development of uniform, multilateral guidance for taxpayers and tax administrators. To the extent that OECD Member States can agree upon safe harbour rules, especially harmonised substantive rules, taxpayer compliance burdens will be reduced. The development of...