TPG2017 Chapter I paragraph 1.36

Category: D. Guidance for applying the arm's length principle, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter I: The Arm's Length Principle | Tag: , , , , ,
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The economically relevant characteristics or comparability factors that need to be identified in the commercial or financial relations between the associated enterprises in order to accurately delineate the actual transaction can be broadly categorised as follows:

  • The contractual terms of the transaction (D.1.1).
  • The functions performed by each of the parties to the transaction, taking into account assets used and risks assumed, including how those functions relate to the wider generation of value by the MNE group to which the parties belong, the circumstances surrounding the transaction, and industry practices (D.1.2).
  • The characteristics of property transferred or services provided (D.1.3).
  • The economic circumstances of the parties and of the market in which the parties operate (D.1.4).
  • The business strategies pursued by the parties (D.1.5).

This information about the economically relevant characteristics of the actual transaction should be included as part of the local file as described in Chapter V in support of a taxpayer’s analysis of its transfer pricing.






Related Guidelines

  1. TPG2022 Chapter I paragraph 1.37Economically relevant characteristics or comparability factors are used in two separate but related phases in a transfer pricing analysis. The first phase relates to the process of accurately delineating the controlled transaction for the purposes of this chapter, and involves establishing the characteristics...
  2. TPG2022 Chapter I paragraph 1.44The following example illustrates the concept of clarifying and supplementing the written contractual terms based on the identification of the actual commercial or financial relations. Company P is the parent company of an MNE group situated in Country P. Company S, situated in...
  3. TPG2022 Chapter I paragraph 1.36The economically relevant characteristics or comparability factors that need to be identified in the commercial or financial relations between the associated enterprises in order to accurately delineate the actual transaction can be broadly categorised as follows: The contractual terms of the transaction (D.1.1)....
  4. TPG2022 Chapter I paragraph 1.38Independent enterprises, when evaluating the terms of a potential transaction, will compare the transaction to the other options realistically available to them, and they will only enter into the transaction if they see no alternative that offers a clearly more attractive opportunity to...
  5. TPG2022 Chapter I paragraph 1.49Where no written terms exist, the actual transaction would need to be deduced from the evidence of actual conduct provided by identifying the economically relevant characteristics of the transaction. In some circumstances the actual outcome of commercial or financial relations may not have...
  6. TPG2022 Chapter I paragraph 1.50The following example illustrates the concept of determining the actual transaction where a transaction has not been identified by the MNE. In reviewing the commercial or financial relations between Company P and its subsidiary companies, it is observed that those subsidiaries receive services...
  7. TPG2022 Chapter I paragraph 1.46In transactions between independent enterprises, the divergence of interests between the parties ensures (i) that contractual terms are concluded that reflect the interests of both of the parties, (ii) that the parties will ordinarily seek to hold each other to the terms of...
  8. TPG2022 Chapter I paragraph 1.40All methods that apply the arm’s length principle can be tied to the concept that independent enterprises consider the options realistically available to them and in comparing one option to another they consider any differences between the options that would significantly affect their...
  1. Italy releases operational instructions on arm’s length range and benchmarking.On 24 May 2022, the Italian Tax Agency (Agenzia delle Entrate) released CIRCULAR NO. 16/E containing operational instructions on issues relating to application of the arm’s length range. The circular – which is based on the OECD transfer Pricing Guidelines, guidance on benchmark...
  2. South African Revenue Service releases comprehensive Interpretation Note on intra-group loansThe South African Revenue Service (SARS) has published a comprehensive Interpretation Note on intra-group loans. The note provides taxpayers with guidance on the application of the arm’s length principle in the context of the pricing of intra-group loans. The pricing of intra-group loans...

Related Case Law

  1. Korea vs “Semicon-Distributor”, May 2021, Seoul High Court, Case No 2020누61166A Korean subsidiary in the “Semiconductor-group” was active in distribution and sales services. At issue was which transfer pricing method was the most appropriate for determining the arm’s length remuneration for these activities in FY 2013. Judgement of the Court The Court dismissed...
  2. Colombia vs Petroleum Exploration International Sucursal Colombia S.A., November 2021, The Administrative Court, Case No. 25000-23-37-000-2016-01988-01(24028)Article 260-8 of the Colombian Tax Statute established which taxpayers were obliged to file Transfer pricing documentation. The rule established two requirements for income taxpayers to be obliged to file DIIPT in the year 2010, the first is to have obtained a gross...
  3. France vs Apex Tool Group SAS, December 2021, Supreme Court, Case No 441357Apex Tool Holding France acquired all the shares of Cooper Industrie France, which has since become Apex Tool France. This transaction was financed by a ten-year vendor loan at a rate of 6%. This claim on Apex Tool Holding France was transferred on...
  4. Latvia vs „RĪGAS DZIRNAVNIEKS”, December 2021, Court of Appeals, Case No A420275316, SKA-103/2021At issue in the case of „RĪGAS DZIRNAVNIEKS” was if the interest rates charged on loans between related parties were at arm’s length. Judgement of the Court of Appeals The Court remanded the case to the Regional Court for a new hearing. Excerpts...