Where significant location savings are derived further to a business restructuring, the question arises of whether and if so how the location savings should be shared among the parties. In addressing this matter, the guidance in Section D.6 of Chapter I is relevant.
TPG2022 Chapter IX paragraph 9.127
Posted on | By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter IX: Transfer Pricing Aspects of Business Restructurings | Tag: Applies generally (1.140), Business restructuring, Location savings, Location savings shared
« Prev |
Next » Related Guidelines
- TPG2022 Chapter I paragraph 1.161 Pursuant to the guidance in paragraphs 9.126 – 9.131, in determining how location savings are to be shared between two or more associated enterprises, it is necessary to consider (i) whether location savings exist; (ii) the amount of any location savings; (iii) the extent to which location savings are either...
- TPG2022 Chapter IX paragraph 9.128 Take the example of an enterprise that designs, manufactures and sells brand name clothes. Assume that the manufacturing process is basic and that the brand name is famous and represents a highly valuable intangible. Assume that the enterprise is established in Country A where the labour costs are high and...
- TPG2022 Chapter IX paragraph 9.126 Location savings can be derived by an MNE group that relocates some of its activities to a place where costs (such as labour costs, real estate costs, etc.) are lower than in the location where the activities were initially performed, account being taken of the possible costs involved in the...
- TPG2022 Chapter IX paragraph 9.130 As another example, assume now that an enterprise in Country X provides highly specialised and quality engineering services to independent clients. It charges a fee to its independent clients based on a fixed hourly rate that compares with the hourly rate charged by competitors for similar services in the same...
- TPG2022 Chapter IX paragraph 9.21 A second example relates to the purported transfer of credit risk as part of a business restructuring. The analysis under Section D. 1.2.1 of Chapter I would take into account the contractual terms before and after the restructuring, but would also examine how the parties operate in relation to the...
- TPG2022 Chapter IX paragraph 9.13 The application of the arm’s length principle to a business restructuring must start, as for any controlled transaction, with the identification of the commercial or financial relations between the associated enterprises involved in the business restructuring and the conditions and economically relevant circumstances attaching to those relations so that the...
- TPG2022 Chapter I paragraph 1.159 Paragraphs 1.130, 1.132 and 6.120 indicate that features of the geographic market in which business operations occur can affect comparability and arm’s length prices. Difficult issues can arise in evaluating differences between geographic markets and in determining appropriate comparability adjustments. Such issues may arise in connection with the consideration of cost...
- TPG2022 Chapter I paragraph 1.162 Where the functional analysis shows that location savings exist that are not passed on to customers or suppliers, and where comparable entities and transactions in the local market can be identified, those local market comparables will provide the most reliable indication regarding how the net location savings should be allocated...
- TPG2022 Chapter VIII paragraph 8.9 As indicated in paragraph 8.4, there is no difference in the analytical framework for analysing transfer prices for CCAs compared to analysing other forms of contractual relations. The guidance in Section D of Chapter I is relevant to the analysis of all transactions between associated enterprises, and applies to identify...
- TPG2022 Chapter IX paragraph 9.20 The framework and detailed guidance for analysing risk laid out in Section D. 1.2.1 of Chapter I is applicable for purposes of undertaking an analysis of risks in the context of business restructurings, and in particular for determining which party assumes a specific risk by reference to control and financial...