TPG2022 Chapter VI paragraph 6.139

Category: D. Determining arm’s length conditions in cases involving intangibles | Tag: , , , , , ,
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Where information regarding reliable comparable uncontrolled transactions cannot be identified, the arm’s length principle requires use of another method to determine the price that uncontrolled parties would have agreed under comparable circumstances. In making such determinations, it is important to consider:

  • The functions, assets and risks of the respective parties to the transaction.
  • The business reasons for engaging in the transaction.
  • The perspectives of and options realistically available to each of the parties to the transaction.
  • The competitive advantages conferred by the intangibles including especially the relative profitability of products and services or potential products and services related to the intangibles.
  • The expected future economic benefits from the transaction.
  • Other comparability factors such as features of local markets, location savings, assembled workforce, and MNE group synergies.





Related Guidelines

  1. TPG2022 Chapter VI paragraph 6.128In conducting a comparability analysis involving the transfer of intangibles or rights in intangibles, the existence of risks related to the likelihood of obtaining future economic benefits from the transferred intangibles must be considered, including the allocation of risk between the parties which...
  2. TPG2022 Chapter VI paragraph 6.129The principles of paragraphs 3.47 to 3.54 relating to comparability adjustments apply with respect to transactions involving the transfer of intangibles or rights in intangibles. It is important to note that differences between intangibles can have significant economic consequences that may be difficult...
  3. TPG2022 Chapter VI paragraph 6.138However, it will often be the case in matters involving transfers of intangibles or rights in intangibles that the comparability analysis (including the functional analysis) reveals that there are no reliable comparable uncontrolled transactions that can be used to determine the arm’s length...
  4. TPG2022 Chapter VI paragraph 6.18This section provides illustrations of items often considered in transfer pricing analyses involving intangibles. The illustrations are intended to clarify the provisions of Section A. 1., but this listing should not be used as a substitute for a detailed analysis. The illustrations are...
  5. TPG2022 Chapter VI paragraph 6.140In identifying prices and other conditions that would have been agreed between independent enterprises under comparable circumstances, it is often essential to carefully identify idiosyncratic aspects of the controlled transaction that arise by virtue of the relationship between the parties. There is no...
  6. TPG2022 Chapter VI paragraph 6.145The transfer pricing methods most likely to prove useful in matters involving transfers of one or more intangibles are the CUP method and the transactional profit split method. Valuation techniques can be useful tools. Supplemental guidance on the transfer pricing methods most likely...
  7. TPG2022 Chapter VI paragraph 6.132In applying the principles of paragraphs 2.1 to 2.12 to matters involving the transfer of intangibles or rights in intangibles, it is important to recognise that transactions structured in different ways may have similar economic consequences. For example, the performance of a service...
  8. TPG2022 Chapter VI paragraph 6.141Care should be used, in applying certain of the OECD transfer pricing methods in a matter involving the transfer of intangibles or rights in intangibles. One sided methods, including the resale price method and the TNMM, are generally not reliable methods for directly...
  1. 2018: ATO Taxpayer Alert on Mischaracterisation of activities or payments in connection with intangible assets (TA 2018/2)The ATO is currently reviewing international arrangements that mischaracterise intangible assets[1] and/or activities or conditions connected with intangible assets. The concerns include whether intangible assets have been appropriately recognised for Australian tax purposes and whether Australian royalty withholding tax obligations have been met. Arrangements...
  2. Additional guidance on the attribution of profits to permanent establishmentsThe OECD has released additional guidance on the attribution of profits to permanent establishments. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments arising under Article 5(5), in accordance with applicable treaty provisions, and includes examples...

Related Case Law

  1. Germany vs “X Sub GmbH”, December 2016, Münster Fiscal Court, Case No 13 K 4037/13 K,FX Sub GmbH is a German subsidiary of a multinational group. The parent company Y Par B.V. and the financial hub of the group Z Fin B.V. – a sister company to the German subsidiary – are both located in the Netherlands. In...
  2. Poland vs L S.A, June 2019, Supreme Administrative Court, Case No. II FSK 1808/17 – Wyrok NSAA Polish subsidiary in a German Group had taken out a significant inter-company loan resulting in a significantly reduced income due to interest deductions. At issue was application of the Polish arm’s length provisions and the arm’s length nature of the interest rate...
  3. Spain vs Ferroli Espa̱a, S.L.U., May 2023, Audiencia Nacional, Case No 3400/2023 РECLI:EN:AN:2023:3400Ferroli Espa̱a, S.L.U. is a Spanish manufacturer manufacture of cookers and heaters. In FY 2010 and 2011 the company had various transactions with other companies in the Ferroli Group and reported negative profit margins on these transactions. According to the company this was...
  4. Spain vs Transalliance Iberica SA, November 2022, Audiencia Nacional, Case No SAN 5336/2022 – ECLI:EN:AN:2022:5336Transalliance Iberica SA had priced its controlled transactions for the years 2008-2013 by comparing the gross margin achieved on an overall basis with the gross margins of comparable companies. Following an audit, the tax authorities issued a notice of assessment rejecting the method...