In furtherance of the BEPS Action 8-10 (Aligning Transfer Pricing with value creation), the OECD has issued draft guidance on the revised Profit Split Method for public comment and input. Comments are invited on the OECD discussion draft and these should be submitted by email to transferpricing@oecd.org by 5^th September 2016.

Transfer pricing remains a challenge to many tax administrations, more so within the Commonwealth where the majority comprise economically vulnerable economies relying on a few multinational enterprises for their tax revenues. Although there exists at the moment five (OECD-recommended) methods of determining transfer prices between related enterprises, these methods have not worked well for many tax auditors and practitioners. In most instances, the outcomes of transfer pricing audits are mere approximation and to a large extent very subjective. Countries have often resorted to the use of tortuous APA framework, where available, in an attempt to resolve some of these cases.

It is not surprising that a number of countries are adopting the “sixth method” as a “safe harbour” in dealing with transfer pricing-related audits.

Profit split between jurisdictions is a pertinent issue in any discussions touching on tax base erosion and in the determination of the situ of value creation. Members are therefore advised to review the OECD discussion draft and submit their comments to the OECD Working Party using the email address provided above. Alternatively, members may submit their inputs to the CATA Secretariat for onward transmission to the OECD.