The 2022 OECD Transfer Pricing Guidelines (released 20 January 2022)
The OECD Transfer pricing Guidelines are intended to help international Groups and Tax Authorities in dealing with transfer pricing issues. They set out methods for satisfying the arm’s length principle.
There have been some updates to the 2017 Guidelines reflecting developments over the last five years:
- Revised Guidance on the Transactional Profit Split Method which was published on 21 June 2018,
- Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles which was published on 21 June 2018;
- Transfer Pricing Guidance on Financial Transactions which was published on 11 February 2020; and
- consistency changes to the rest of the OECD Transfer Pricing Guidelines.
This January 2022 edition therefore amalgamates and includes all the formal guidance published by the OECD since the 2017 edition’s release rather than introducing new content. These updates expand the guidelines from 612 pages to 658 pages.
The revised guidance on transactional profit split aims to clarify when the transactional profit split method is the most appropriate method to apply with examples to illustrate the guidance. The updates replace paragraphs in the section on the transactional profit split method (Chapter II, Part III, section C). There are also examples to illustrate the guidance in Annex II to Chapter II.
With respect to hard-to-value intangibles the guidance is intended to help in applying the approach to hard-to-value intangibles under BEPS Action 8. The changes are included in a new annex – Annex II to Chapter VI.
For Financial transactions, illustrative examples are included in Chapter X and there is a new section in Chapter I (The arm’s length principle) section D.1.2.2 on risk-free and risk-adjusted rates of return.
UK TP Documentation consultation update
In March 2021 HMRC launched a consultation on UK transfer pricing documentation. The consultation has considered whether large companies in the UK should be required to maintain, and produce upon request, Master File and Local File documentation in line with the OECD standardised approach. HMRC intends to consult on draft legislation in 2022, with any new rules expected to take effect from April 2023.
In reality since the BEPS Action 13 report, more and more groups have been using the OECD Master File and Local File templates to prepare their transfer pricing documentation. HMRC, other global Tax Authorities and external auditors carrying out statutory audits are now very used to seeing transfer pricing documentation in the form of a Master File and Local File and so it may be advantageous to adopt this format even if the Group does not cross the large EUR 750 million threshold.