BEPS Action Plan: Action 9 – Transfer pricing and risks/capital

Action 9 of the OECD BEPS Action Plan is designed to develop rules to prevent base erosion and profit shifting through the transfer of risks among — or the allocation of excessive capital to — group members. We comment on this action here and provide links to additional content.




19 December 2014

The OECD has invited comments from interested parties on a discussion draft on revisions to Chapter I of the Transfer Pricing Guidelines (Including risk, recharacterisation and special measures). This work relates to Actions 8, 9 and 10 of the BEPS Action Plan (see our Action 8 comments ).


3 June 2014

The OECD’s Annual Conference in Washington DC provided an indication that …

a discussion draft on risk and capital will be issued after the G20 meeting in November 2014 with the likely first consultation in December 2014/January 2015.


14 November 2013

Risk, recharacterisation and transfer pricing methods were highlighted as BEPS-related issues at the public consultation on transfer pricing at the OECD on 11/12 November and it was...

recognised that the bearing of ‘real economic risk’ is not necessarily aligned with the performance of functions. It was also suggested that if risk is shared amongst members of a multinational group, the starting proposition should always (at least in the first instance) be the relevant legal agreements in place.

Delegates generally agreed that recharacterisation was a tool and must be applied cautiously. Specific concern was raised in the event that two tax authorities were to take opposing approaches to recharacterisation, with the potential risk of double taxation that would result and the lack of means to resolve it. It was recommended that recharacterisation must only occur in the limited circumstances as set out in the Transfer Pricing Guidelines.


2 September 2013

An approach which places more weight on any part of the ‘functions, assets, and risks’ model for determining compensation creates …

the potential for double taxation (as countries may seek to place undue reliance on whichever of those factors favours their jurisdiction). The action talks about ‘inappropriate returns’ but that involves judgement on what is appropriate. It will therefore be important for any changes in this area to represent clear standards which can be — and are in practice — uniformly applied by tax authorities.


5 August 2013

As with the contribution of intangibles and other valuable assets, a reward is required for funding risky ventures, and that should …

also apply in the case of transactions involving the provision of capital or the assumption of the associated risk.

However, the OECD is giving consideration to measures addressing what might be regarded as ‘inappropriate returns’, including transactions involving the returns which can accrue to an entity solely based on its assumption of risk or provision of capital.


19 July 2013

Rules are to be developed to prevent BEPS by transferring risks among, or allocating excessive capital to, group members. The work …

(to be completed within two years) will focus in particular on ensuring that inappropriate returns do not accrue to an entity solely because it has contractually assumed risks or has provided capital, implying a clear ‘substance’ agenda. The rules to be developed will also require alignment of returns with value creation.