BEPS Action Plan: Action 10 – Transfer pricing and other high-risk transactions

The objective of action 10 in the OECD’s BEPS Action Plan is to develop rules to prevent abusive transactions which would not, or would only very rarely, occur between unrelated parties. We provide commentary and links to content on action 10.



4 November 2014

Proposed modifications to Chapter VII of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations for management fees and other low value-adding services…

do not yet represent a consensus view and are intended to provide stakeholders with substantive proposals for analysis and comment.

The Working Party seems to have taken a step in the right direction to achieve a balance between appropriate charges and protecting the tax base, but the draft fails to substantially address how the additional guidance will be impacted by the other BEPS work.

These proposals mainly consist of an elective, simplified alternative approach to the usual TP exercise.

There is a definition of what constitutes the low value-adding services that would be covered and a number of examples of things which the OECD doesn’t think would qualify.

The single mark-up to be utilised for all these services would function as a safe-harbour and thus not require to be supported by a benchmarking study and would be between 2% and 5% of the relevant cost base.

The OECD has asked for comments to be submitted by interested parties no later than 14 January 2015 and intends to hold a public consultation on this discussion draft and other topics on 19 and 20 March 2015.


14 November 2013

At the public consultation on transfer pricing at the OECD on 11/12 November, Joe Andrus said in fulfilling the OECD’s secretariat function for Working Party 6...

that the scope of Action 10 was still under discussion.

We were asked to make one of the lead presentations in the area of financial transaction, where the transfer pricing considerations would, it was agreed, depend to some extent on the outcome of the work on interest deductibility limitations (Action 4). Sharing our views on what the BEPS work on financial transactions should address, we stressed that taxpayers were in desperate need of unified guidance.

In determining appropriate arm’s length prices for loans and guarantees between related parties, it is first necessary to determine the debt capacity of the relevant company. However, even this preliminary task requires consideration of a number of factors, including industry variables and arm’s length comparables, thin capitalisation rules / concessions and group / parent affiliation.

Determining an appropriate price for loans and guarantees then becomes important. An approach based upon market behaviour could be used (for example, taking into account implicit guarantees – which almost entirely depend on the lender’s risk profile, as opposed to the borrower or their parent).


2 September 2013

The overall approach adopted may indicate a marked increase in importance of directly-relevant comparable pricing information. However, in our view…

the arm’s length principle doesn’t require that comparables between unrelated parties exist for every transaction and also that when they don’t transactions can still be priced by resort to transfer pricing methods. Increasing use of recharacterisation could lead to uncertainty and double taxation. 


15 August 2013

Several countries have been advocating that transactions which would not, or would rarely, occur among independent parties should not be respected…

and should be recharactised for tax (including TP) purposes, instead of adopting a pricing solution. Countries like Australia, France and Germany are strong advocates of recharacterisation while the US and, more latterly, the UK seem to consider it less appropriate.


19 July 2013

Rules will be developed to prevent BEPS by engaging in transactions which would not realistically occur between unrelated parties. This will require …

clarification of the circumstances in which transactions can be recharacterised.  There is also to be a clarification of TP methods, in particular profit splits, which should be applied in the context of global value chains. The work will also aim to provide protection against common types of base eroding payments, such as management fees and head office expenses. The work is to be completed within two years.

Explore additional BEPS action plans: