TPguidelines

The report gives separate consideration to four main types of intra-group transactions for the convenience of the analysis of the problems presented by intra-group transfer pricing. But it must be borne in mind that, in practice, MNEs quite frequently make package deals in which a single charge is made for a variety of benefits. In theory at least a parent company might licence patents, know-how and trademarks to a subsidiary, undertake to provide it with various technical and administrative services, and even sell or lease production facilities to it, all for an undifferentiated payment. Such comprehensive packages would be unlikely to include sales of goods, however, although the price charged for sales of goods may cover some accompanying services. While it may, in some circumstances, be convenient to treat the package deal as in effect one transaction with its own arm’s length price, this will often not be feasible. It has to be borne in mind that package deals even between unrelated parties may create intricate problems for the tax authorities concerned. For example, the tax treatment of the separate ingredients may differ either under domestic law or under a double taxation agreement; payments for ser vices for instance are generally not required to be made under deduction of tax in the country of source whereas royalties or interest may be subject to a withholding tax and so on. It may be necessary therefore for the tax authorities, for one reason or another, to insist on appraising the different items of the deal separately. Tax authorities will need to examine a package deal between associated enterprises and its elements in the same way as they would analyse similar deals between unrelated parties. The report aims to provide the foundation for such an analysis insofar as it is necessary to make one.