OECD’s Action Plan On ‘Base Eroding’ Payments

On November 3, 2014, the Organisation for Economic Co-operation and Development (OECD) published its discussion draft on the proposed modifications to Chapter VII of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. These proposed modifications have been developed in connection with Action Point 10 of the Action Plan on Base Erosion and Profit Shifting (BEPS). The proposed modifications do not yet represent a consensus view and are intended to provide stakeholders with substantive proposals for analysis and comment. Action Point 10 is focused on developing rules to prevent BEPS though the use of transactions which would not, or would only very rarely, occur between third parties including adopting transfer pricing rules or special measures to provide protection against common types of “base eroding” payments, such as management fees and head office expenses.

The proposed modifications to Chapter VII of the OECD Guidelines seek to achieve a necessary balance between appropriate charges for low value-adding services and the need to protect the tax base of countries in which entities are established that pay the service fees. The Working Party has taken a step in the right direction to achieve that balance, but has not addressed how the additional guidance will be impacted by the other work the OECD is performing as part of the BEPS Action Plan. Read this PwC alert for the analysis.