TPG2017 Chapter I paragraph 1.87

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 significance of step 4 will depend on the findings. In the circumstances of Examples 1 and 2 above, the step may be straightforward. Where a party contractually assuming a risk applies that contractual assumption of risk in its conduct, and also both exercises control over the risk and has the financial capacity to assume the risk, then there is no further analysis required beyond step 4(i) and (ii) to determine risk assumption. Companies A and B in both examples fulfil the obligations reflected in the contracts and exercise control over the risks that they assume in the transaction, supported by financial capacity. As a result step 4(ii) is satisfied, there is no need to consider step 5, and the next step to consider is step 6.






Related Guidelines

  1. TPG2022 Chapter I paragraph 1.87The significance of step 4 will depend on the findings. In the circumstances of Examples 1 and 2 above, the step may be straightforward. Where a party contractually assuming a risk applies that contractual assumption of risk in its conduct, and also both...
  2. TPG2022 Chapter I paragraph 1.94Furthermore, in some cases, there may be more than one party to the transaction exercising control over a specific risk. Where the associated enterprise assuming risk (as analysed under step 4(i)) controls that risk in accordance with the requirements set out in paragraphs...
  3. TPG2022 Chapter I paragraph 1.93In some cases, the analysis under step 3 may indicate that there is more than one MNE that is capable of exercising control over a risk. However, control requires both capability and functional performance in order to exercise control over a risk. Therefore,...
  4. TPG2022 Chapter I paragraph 1.92In the circumstances of Example 3, analysis under step 4(i) shows that the assumption of utilisation risk by Company A is consistent with its contractual arrangements with Company C, but under step 4(ii) it is determined that Company A does not control risks...
  5. TPG2022 Chapter I paragraph 1.91If the circumstances of Example 2 remain the same except for the fact that, while the contract specifies that Company A assumes supply chain risks, Company B is not reimbursed by Company A when there was a failure to secure key components on...
  6. TPG2022 Chapter I paragraph 1.90Under step 4(ii) it should be determined whether the party assuming the risk under the contract, taking into account whether the contractual terms have been applied in the conduct of the parties under step 4(i), controls the risk and has the financial capacity...


Related Case Law

  1. Panama vs “Petroleum Wholesale Corp”, September 2020, Administrative Tribunal, Case No TAT-RF-062“Petroleum Wholesale Corp” is engaged in the wholesale of petroleum products, accessories and rolling stock in general in Panama. Following a thorough audit carried out by the Tax Administration in Panama, where discrepancies and inconsistencies had been identified between the transfer pricing documentation...
  2. Denmark vs. “H Borrower and Lender A/S”, January 2021, Tax Tribunal, Case no SKM2021.33.LSR“H Borrower and Lender A/S”, a Danish subsidiary in the H Group, had placed deposits at and received loans from a group treasury company, H4, where the interest rate paid on the loans was substantially higher than the interest rate received on the...
  3. European Commission vs. Amazon and Luxembourg, May 2021, State Aid – European General Court, Case No T-816/17 and T-318/18In 2017 the European Commission concluded that Luxembourg granted undue tax benefits to Amazon of around €250 million.  Following an in-depth investigation the Commission concluded that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by...
  4. Sweden vs Pandox AB, February 2022, Administrative Court, Case No 12512-20, 12520–12523- 20 and 13265-20Pandox AB is the parent company of a hotel group active in northern Europe. Pandox AB’s business concept is to acquire hotel property companies with associated external operators running hotel operations. Pandox AB acquires both individual companies and larger portfolios, both in Sweden...
  5. European Commission vs Amazon and Luxembourg, December 2023, European Court of Justice, Case No C‑457/21 PIn 2017 the European Commission concluded that Luxembourg had granted undue tax benefits to Amazon of around €250 million. According to the Commission, a tax ruling issued by Luxembourg in 2003 – and prolonged in 2011 – lowered the tax paid by Amazon...