OECD

    OECD's mission is to contribute to the expansion of world trade on a multilateral, non-discriminatory basis and to achieve the highest sustainable economic growth in member countries, has continuously worked to build a consensus on international taxation principles, thereby avoiding unilateral responses to multilateral problems.

      OECD Member Countries

      The OECD's origins date back to 1960, when 18 European countries plus the United States and Canada joined forces to create an organisation dedicated to economic development. Today, the OECD has 35 Member countries, from North and South America to Europe and Asia-Pacific. They include many of the world’s most advanced countries but also emerging countries like Mexico, Chile and Turkey. The OECD also work closely with emerging economies like the People's Republic of China, India and Brazil and developing economies in Africa, Asia, Latin America and the Caribbean.

        The OECD Committee on Fiscal Affairs

        The Committee on Fiscal Affairs, which is the main tax policy body of the OECD, has issued a number of reports relating to the application of these Articles to MNEs and to others. The Committee has encouraged the acceptance of common interpretations of these Articles, thereby reducing the risk of inappropriate taxation and providing satisfactory means of resolving problems arising from the interaction of the laws and practices of different countries.

          Transfer Pricing - The Arm's Length Principel

          To ensure the correct application of the separate entity approach, OECD member countries have adopted the arm’s length principle, under which the effect of special conditions on the levels of profits should be eliminated.
          The international taxation principles have been chosen by OECD member countries as serving the dual objectives of securing the appropriate tax base in each jurisdiction and avoiding double taxation, thereby minimising conflict between tax administrations and promoting international trade and investment. In a global economy, coordination among countries is better placed to achieve these goals than tax competition.
          The principles concerning the taxation of MNEs are incorporated in the OECD Model Tax Convention on Income and on Capital (OECD Model Tax Convention), which forms the basis of the extensive network of bilateral income tax treaties between OECD member countries and between OECD member and non-member countries. These principles also are incorporated in the Model United Nations Double Taxation Convention between Developed and Developing Nations.
          The main mechanisms for resolving issues that arise in the application of international tax principles to MNEs are contained in these bilateral treaties. The Articles that chiefly affect the taxation of MNEs are:

          - Article 4, which defines residence;
          - Articles 5 and 7, which determine the taxation of permanent establishments;
          - Article 9, which relates to the taxation of the profits of associated enterprises and applies the arm’s length principle;
          - Articles 10, 11, and 12, which determine the taxation of dividends, interest, and royalties, respectively;
          - Articles 24, 25, and 26, which contain special provisions relating to non-discrimination, the resolution of disputes, and exchange of information.

          One of the most difficult issues in applying the principles to the taxation of MNE's is the establishment for tax purposes of appropriate transfer prices. Transfer prices are the prices at which an enterprise transfers physical goods and intangible property or provides services to associated enterprises. For purposes of these Guidelines, an “associated enterprise” is an enterprise that satisfies the conditions set forth in Article 9, sub-paragraphs 1a) and 1b) of the OECD Model Tax Convention. Under these conditions, two enterprises are associated if one of the enterprises participates directly or indirectly in the management, control, or capital of the other or if “the same persons participate directly or indirectly in the management, control, or capital” of both enterprises (i.e. if both enterprises are under common control).
          The issues discussed in the OECD Guidelines also arise in the treatment of permanent establishments as discussed in the Report on the Attribution of Profits to Permanent Establishments that was adopted by the OECD Council in July 2010, which supersedes the OECD Report Model Tax Convention: Attribution of Income to Permanent Establishments (1994). Some relevant discussion may also be found in the OECD Report International Tax Avoidance and Evasion (1987).

            OECD Content

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