On June 22, 2017 the Platform for Collaboration on Tax released a toolkit for addressing difficulties in accessing comparables data for transfer pricing analyses, including a supplementary report on addressing the information gaps on prices of minerals sold in an intermediate form. The toolkit has been updated following comments on a consultation draft which was made public in January 2017. According to the OECD, the toolkit will soon also be available in French and Spanish.
The toolkit specifically addresses the ways developing countries can overcome a lack of data needed to implement transfer pricing rules. This data is needed to determine whether the prices the enterprise uses accord with those which would be expected between independent parties. The guidance will also help countries set rules and practices that are more predictable for business.
Since the pricing of transactions between related parties in the extractive industries is an issue of particular relevance to many developing countries, the toolkit also addresses the information gaps on prices of minerals sold in an intermediate form (such as concentrates).
The toolkit discusses a.o. the following topics:
PART I: INTRODUCTION - ADDRESSING THE DIFFICULTIES IN PERFORMING COMPARABILITY ANALYSES
PART II: ISSUES ARISING WHEN CONDUCTING A COMPARABILITY ANALYSIS
· Initial Considerations
· Comparability Analysis — Delineating the Transaction
o Broad-based analysis of the taxpayer’s circumstances
o Accurate delineation of the actual controlled transaction—focus on the economically significant characteristics
o Initial review of possible sources of internal comparables and sources of information on external comparables
o Select the most appropriate transfer pricing method
· Data Relevant for Comparability Analyses
o Role of data
o Sources of potential comparables data and typical types of data used
o Commercial databases
o Identification of potential comparables
· Making Optimal Use of Available Data
o Other sources of information
o Wider selection of data
· Determination of and Making Comparability Adjustments Where Appropriate
o General
o Working capital adjustments (WCA)
o Adjustments for accounting differences
o Other adjustments
o Dealing with a lack of (local) comparables
· Interpretation and Use of Data Collected, Determination of the Arm’s Length Remuneration
o Arm’s length range
o Statistical approaches
o Determining an arm’s length range or point from a potentially comparable result
o Build-up approaches
· Summary
PART III: APPROACHES TO APPLYING INTERNATIONALLY ACCEPTED PRINCIPLES IN THE ABSENCE OF COMPARABLES
· Introduction
· Approaches to Increase the Availability of Primary Comparables Data
· Approaches That Focus on the Arm’s Length Nature of a Transaction
o Testing the benefits received
· Safe Harbours, Fixed Margin and Other Prescriptive Approaches
o Safe harbours for TP
o Safe harbours on TP process
o Other prescriptive rules
· Transactional Profit Split Method
· Valuation Techniques
· Advance Pricing Arrangements and Other Co-Operative Compliance Approaches
· Anti-Avoidance and Other Tax Base Protection Measures
PART IV: SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS FOR FURTHER WORK
· Summary
· Conclusions
o Safe harbours
o Data available to tax administrations
o A framework for the selection and application of the most appropriate method
· Recommendations for Further Work
CASE STUDIES
· Case Study 1: Thermal Coal
· Case Study 1A: Thermal Coal
· Case Study 1B: Thermal Coal
· Case Study 2: Construction
· Case Study 3: Gold Production and Sales
Furthermore the following appendices are included in the Draft toolkit:
· Appendix 1 - Questionnaire: Functional analysis
· Appendix 2 - Characterisation based on typical business models
· Appendix 3 - Examples of commercial databases used for transfer pricing
· Appendix 4 - Countries with available data from potential comparables meeting minimum requirement for application of the arm's length principle
· Appendix 5 - Most common types of classification codes
· Appendix 6 - A selection of other types of classification codes
· Appendix 7 - Independence criteria
· Appendix 8 - Factors to consider when reviewing a comparables search process
· Appendix 9 - Example of a working capital adjustment
· Appendix 10 - Example of adjustment for accounting differences
· Appendix 11 - Limited empirical support for reliance on non-adjusted foreign market data
· Appendix 12 - Examples on country risk adjustments
· Appendix 13 - Formulas for a two-step approach to country risk
· Appendix 14 - Interquartile range
· Appendix 15 - Financial ratios and acronyms
· Appendix 16 - Common acronyms
· Appendix 17 - Ratios measuring functions, assets, and risks
· Appendix 18 - Illustrative legislation or regulation for a safe harbour on international transactions involving routine, low risk manufacturing operations
· Appendix 19 - Country practices on safe harbours for low value-adding transactions
The supplementary report addressing the information gaps on prices of minerals sold in an intermediate form discusses a.o. the following topics:
· BUILDING AN UNDERSTANDING OF THE MINING SECTOR – A METHODOLOGY
· WIDER ISSUES CONNECTED TO MINERAL PRODUCT PRICING
· THE MINERAL PRODUCT CASE STUDIES
o Case Study: Copper
o Case Study: Iron Ore
o Case Study: Thermal Coal
o Case Study: Gold
Click here to be forwarded to the toolkit for addressing difficulties in accessing comparables data for transfer pricing analyses, including a supplementary report on addressing the information gaps on prices of minerals sold in an intermediate form, as released by the Platform for Collaboration on Tax on June 22, 2017.
The Platform for Collaboration on Tax is a joint initiative of the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group.
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