OECD updates transfer pricing guidelines and model tax convention

The OECD has released the 2017 edition of its ‘Transfer pricing guidelines for multinational enterprises and tax administrations’ and is also inviting comments by 10 August on a draft of the latest update to the Model Tax Convention.

The 2017 edition of ‘Transfer pricing guidelines for multinational enterprises and tax administrations’ consolidates a number of revisions made since the 2010 edition (see http://bit.ly/2tHB7PN). These include:

• substantial revisions introduced by the 2015 BEPS reports on Actions 8–10: ‘Aligning transfer pricing outcomes with value creation’, and Action 13: ‘Transfer pricing documentation and country-by-country reporting’, which were incorporated into the transfer pricing guidelines in May 2016;
• revisions to Chapter IX on business restructurings, bringing the guidance into line with revisions introduced by the reports on Actions 8–10 and 13, as approved by the OECD Council in April 2017;
• revised guidance on safe harbours in Chapter IV, as approved by the OECD Council in May 2013; and
• changes to achieve consistency with the rest of the consolidated guidelines, as approved by the OECD’s committee on fiscal affairs in May 2017.

The latest edition also includes the revised recommendation of the OECD ‘Council on the determination of transfer pricing between associated enterprises’, reflecting the establishment of the BEPS inclusive framework and inviting non-OECD members to observe its recommendation.

The draft of the 2017 update to the Model Tax Convention contains a number of changes already approved as part of the BEPS package. Comments are only sought by 10 August on those parts of the update not already approved (see http://bit.ly/2t2L5MM). These include:

• changes to para 13 of the commentary on article 4, related to the issue of whether a house rented to an unrelated person can be a ‘permanent home available to’ the landlord for purposes of the tie-breaker rule in article 4(2)(a);
• changes to paras 17 and 19 of the commentary on article 4, and the addition of a new para 19.1, are intended to clarify the meaning of ‘habitual abode’ in the tie-breaker rule in article 4(2)(c);
• the addition of new para 1.1 to the commentary on article 5 indicates that registration for the purposes of a value added tax or goods and services tax is, by itself, irrelevant for the purposes of the application and interpretation of the permanent establishment definition;
• the deletion of the reference ‘(other than a partnership)’ from sub-para 2(a) of article 10 is intended to ensure that the reduced rate of source taxation on dividends provided by that sub-para is applicable in the case where new article 1(2) would have the effect that: a dividend paid to a transparent entity would be income of a resident of a contracting state because it is taxed either in the hands of the entity or in the hands of the members of that entity; and
• the above deletion is accompanied by new paras 11 and 11.1 of the commentary on article 10.