BEPS: new thinking on risk, excess capital and recharacterisation

The recent OECD BEPS discussion paper on risk, excess capital and recharacterisation reflects new thinking on a number of critical transfer pricing matters. The draft proposes a new framework for dealing with risk which would impact a number of existing structures. There is additionally a tougher approach to intra-group arrangements for the transfer of risk. Also proposed is a new and expanded approach to whether transactions should be recognised – or recharacterised. The relevance of the conduct of parties generally for transfer pricing purposes has also been appreciably underscored. The discussion draft also proposes a number of radical ‘special measures’ to deal with highly capitalised but lowly taxed vehicles, and a measure directed at the transfer of hard-to-value intangibles.