OECD Transfer Pricing Guidelines

Transcription

1 OECD Transfer Pricing Guidelines Who is likely to be affected? Businesses subject to the transfer pricing rules in respect of a transaction (or series of transactions) with a connected party. General description of the measure Legislation will be introduced in Finance Bill 2011 to update the definition of transfer pricing guidelines to refer to the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations approved by OECD for publication in July Policy objective The change to the definition means that UK legislation will reflect the recently updated version of the internationally agreed OECD guidelines. This provides certainty for business and ensures any potential for double taxation is minimised. Background to this measure The OECD approved for publication the 2010 version of the transfer pricing guidelines in July Publication followed an extensive period of consultation at the OECD. Detailed proposal Operative date The measure will have effect for accounting periods beginning on or after 1 April 2011 and, for income tax purposes, for the tax year and subsequent years. Current law UK transfer pricing rules are found within Schedule 28AA to the Income and Corporation Taxes Act 1988 (for accounting periods ending on or after 1 July 1999 and, for the purposes of income tax, any year of assessment ending on or after 1 July 1999) and Part 4 of the Taxation (International and Other Provisions) Act 2010 (for accounting periods ending on or after 1 April 2010 and, for the purposes of income tax, the tax year and subsequent years). UK transfer pricing rules are to be interpreted consistently with OECD principles, in accordance with the transfer pricing guidelines which are defined as all documents published by the Organisation for Economic Co-operation and Development, at any time before 1 May 1998, as part of their Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Current legislation allows for OECD documents published after 1 May 1998 to be included in the definition of transfer pricing guidelines by way of secondary legislation. But this existing power does not allow for the removal and replacement of the reference to the existing OECD guidelines. 100

2 Proposed revisions In July 2010, the OECD approved for publication a revised version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, incorporating revisions to Chapters I-III on profit methods and comparability and introducing a new chapter, Chapter IX, on transfer pricing aspects of business restructurings. Finance Bill 2011 will make clear that, for accounting periods beginning on or after 1 April 2011 (and, for income tax, for the tax year and subsequent years) the version of the OECD guidelines to be referred to is the version approved by the OECD in July The amended power will also allow changes to the definition of transfer pricing guidelines, whether supplementing or replacing the 2010 Guidelines, to be made by secondary legislation. Summary of impacts Exchequer impact ( m) Economic impact Impact on individuals and households Equalities impacts Impact on business including third sector Impact on public sector Other impacts This measure is not expected to have any significant impact on receipts, and will be confirmed at the Budget. This measure is not expected to have significant economic impact. There is no impact on individuals and households. Individuals and households are not subject to transfer pricing guidelines and the main impact of this measure is on multinational companies. It is not therefore likely that the measure will have any different impact on different equality groups The new guidelines provide greater certainty for business subject to transfer pricing rules. There are no additional compliance costs associated with the change to the definition. Transfer pricing legislation will not apply to the majority of small business transactions as they will be covered by specified exemptions; where they are not exempt, the new guidelines will apply. Costs to HM Revenue & Customs associated with the change to the definition are negligible. There is no impact on competition because all businesses continue to use the same definition. Monitoring and evaluation The policy will be kept under review through regular communication with the business sectors affected by the measure. Further advice If you have any questions about this change, please contact Maura Parsons on ( maura.parsons@hmrc.gsi.gov.uk). 101

3 Consultation draft 1 1 Transfer pricing: application of OECD principles (1) In section 164 of TIOPA 2010 (Part to be interpreted in accordance with OECD principles), for subsection (4) substitute (4) In this section the transfer pricing guidelines means (a) the version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations approved by the Organisation for Economic Co-operation and Development (OECD) on 22 July 2010, or (b) such other document approved and published by the OECD in place of that (or a later) version or in place of those Guidelines as is designated for the time being by order made by the Treasury, and including, in either case, such material published by the OECD as part of (or by way of update or supplement to) the version or other document concerned as may be so designated. (2) The amendment made by this section has effect (in relation to provision made or imposed at any time) (a) for corporation tax purposes, for accounting periods beginning on or after 1 April 2011, and (b) for income tax purposes, for the tax year and subsequent tax years.

4 FINANCE (No.3) BILL DRAFT EXPLANATORY NOTE TRANSFER PRICING: APPLICATION OF OECD PRINCIPLES SUMMARY 1. This clause updates the definition of transfer pricing guidelines within the UK s transfer pricing legislation to refer to the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations approved by OECD for publication in July It also extends the power to make future changes to the definition by secondary legislation to include replacement of the existing version of the OECD Transfer Pricing Guidelines 3. The changes apply, for corporation tax purposes, for accounting periods beginning on or after 1 April 2011, and, for income tax purposes, for the tax year and subsequent tax years. DETAILS OF THE CLAUSE 4. Subsection (1) replaces section 164(4), of the Taxation (International and Other Provisions) Act 2010, which defined transfer pricing guidelines as the OECD s Transfer Pricing Guidelines for Multi-National Enterprises and Tax Administrations published before 1 May 1998, with a new subsection (4). 5. New subsection (4)(a) defines the transfer pricing guidelines as the Transfer Pricing Guidelines for Multi-National Enterprises and Tax Administrations approved by the OECD on 22 July New subsection (4)(b) allows for future changes to the definition of transfer pricing guidelines where updates or replacement versions of the OECD transfer pricing guidelines are published to be made by secondary legislation. 7. Subsection (2) provides that the new subsection (4)(a) and (4)(b) have effect for corporation tax purposes, for accounting periods beginning on or after 1 April 2011 and, for income tax purposes, for the tax year and subsequent tax years BACKGROUND NOTE 8. Transfer prices are the prices that connected parties use when they conduct business with each other.

5 FINANCE (No.3) BILL 9. UK transfer pricing rules are based on the internationally agreed arm s length principle. Guidance on applying the arm s length principle is set out in the OECD s transfer pricing guidelines, which are referred to in UK transfer pricing legislation. They are available from the OECD website ( 10. In July 2010, following an extensive period of consultation, the OECD published revised and updated guidelines on applying the arm s length principle. These provide greater practical guidance and reflect changes of emphasis based on experience gained since the guidelines were originally published in If you have any questions about this change or comments on the legislation, please contact Maura Parsons on ( maura.parsons@hmrc.gsi.gov.uk) or Jon Clark on ( jon.a.clark@hmrc.gsi.gov.uk).