Transfer pricing alert 2022

Charles Marais
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On Thursday January 20th, the OECD has released the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 (“OECD TPG"). These Guidelines represent the preeminent source of interpretation of and guidance on the application of the “arm’s length principle”, which form the international consensus on evaluating the conditions under which cross-border transactions are conducted within multinational enterprises.


For those of us who have closely followed the OECD’s publications on transfer pricing, the 2022 OECD TPG do not hold any surprises. Since the previous Guidelines, the OECD have published revised guidance on the application of the transactional profit split method as well as guidance on the application of the arm’s length principle to hard-to-value intangibles in 2018. In 2020 new guidance on financial transactions was approved. These have all now been formally added to the OECD TPG. The 2020 guidance on the application of the arm’s length principle in the context of the Covid-19 pandemic was not added to the OECD TPG.

History and context

The original OECD TPG were released in 1995 and were broadly based on the best practices of large multinationals. Subsequent updates have seen more and more focus on the prevention of profit shifting and base erosion, as well as providing tax authorities with guidance on effectuating requirements and enforcing anti-abuse rules and regulations in practice.

The OECD TPG form a principle-based document, that is globally used and adopted by the vast majority of countries. Although differences in local applications may result in different outcomes on a case-by-case basis, the underlying principles are universally accepted. As indicated in the 2018 Dutch Transfer Pricing Decree, the Dutch State Secretary of Finance considers the OECD TPG as an appropriate interpretation and clarification of the Dutch arm’s length principle as codified in article 8b of the Corporate Income Tax Act of 1969.

Given the significance of the OECD TPG, in both national and international context, this newest release should be appropriately accounted for in transfer pricing policies and documentation. It has historically been the Dutch State Secretary of Finance’s view that that changes to the OECD TPG form a clarification of the interpretations of existing rules and regulations, rather than new rules. Therefore, it is likely that the Dutch Tax Authorities shall seek to apply the new guidance retroactively, when examining fiscal years prior to its publication.

Profit Split Method

The revision of the guidance on the application of the profit split method should be seen in the context of a trend in the approach of local tax jurisdictions to pursue this method in determining local profitability. The revised guidance on the application of the profit split method effectively widens the applicability of this method by considering more circumstances under which it is appropriate. Taxpayers generally disfavour the use of the profit split method, as it is administratively cumbersome to apply and leads to unpredictable outcomes year by year. The use of these revisions of the OECD TPG may well lead to contentious tax audits in the future. From a pragmatic point of view, it is highly advisable for multinationals to revisit the reasons for rejecting the profit split method in their annual transfer pricing documentation.

Hard-to-Value Intangibles

The revised guidance on intangibles saw some additional examples of how to apply the previous guidance on hard-to-value intangibles. This both clarified the definition of such intangibles and how the guidance on treating them may be applied by tax administrations. It also emphasises the need for considering the inclusion of a price adjustment clause, in those cases when third parties would include such a clause in their agreements.

The revised guidance underlines the necessity for contemporaneous documentation of transactions involving the transfer and sale of intangibles. This documentation should include considerations as to the characterisation of hard-to-value intangibles, as well as the assumptions and parameters applied in the valuation of said intangibles.

Financial Transactions

In 2020 new transfer pricing guidance on financial transactions was approved. This guidance has been included as Chapter X of the OECD TPG without any significant alterations since the guidance was released. The purpose of this chapter is to provide guidance for determining whether conditions of intercompany financial transactions are consistent with the arm’s length principle. specific guidance is provided with respect to intra-group loans, cash pooling, hedging, financial guarantees, and captive insurance.

Over the past few years, we have observed increased levels of scrutiny b on financial arrangements. Particular focus has been on the application of dual sided analyses, so as to consider the perspectives of both the borrower and the lender and the respective risk management and control functions performed by them. In our experience, financial transactions are expected to be substantiated with functional and economic analyses that consider the business rationale behind particular financial transactions. These analyses should go beyond merely substantiating interest rates or margins.

We would recommend revisiting intercompany financing policies and related transfer pricing documentation, as to align with the standards of Chapter X.


If you are interested in discussing the impact of the 2022 OECD TPG on your business, or if would like to talk about your transfer pricing policies, please feel free to contact the Grant Thornton Netherlands Transfer Pricing Team.