TPG2022 Chapter IX paragraph 9.23

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Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter IX: Transfer Pricing Aspects of Business Restructurings | Tag: , , , , ,
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For instance, where a full-fledged distributor is converted into a limited-risk distributor or commissionnaire resulting in the reduction or elimination of risks relating to inventory in the restructured enterprise, in order to determine whether such risk is economically significant the tax administration may want to analyse:

  • The role of inventory in the business model (for example, speed to market, comprehensive range),
  • The nature of the inventory (for example, spare parts, fresh flowers),
  • The level of investment in inventory,
  • The factors giving rise to inventory write-downs or obsolescence (for example, perishability, pricing pressures, speed of technical improvements, market conditions),
  • The history of write-down and stock obsolescence, and whether any commercial changes affect the reliability of historic performance as an indicator of current risk,
  • The cost of insuring against damage or loss of inventory, and
  • The history of damage or loss (if uninsured).

Related Guidelines

TPG2022 Chapter IX paragraph 9.20The 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...
TPG2022 Chapter IX paragraph 9.21A 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...
OECD COVID-19 TPG paragraph 40In determining whether or not a “limited-risk” entity may incur losses, the risks assumed by an entity will be particularly important. This reflects the fact that at arm’s length, the allocation of risks between the parties to an arrangement affects how profits or losses resulting from the transaction are allocated.23...
TPG2022 Chapter IX paragraph 9.105When one compares a situation where a long-established full-fledged distributor is converted into a limited risk distributor with a situation where a limited risk distributor has been in existence in the market for the same duration, there might also be differences because the full-fledged distributor may have performed some functions,...
TPG2022 Chapter IX paragraph 9.54In practice, what to do about inventory at the time of the restructuring would likely be taken into account by unrelated parties in agreeing the terms of the total deal, and inventory should be analysed as part of delineating the actual transactions comprising the business restructuring. A key consideration is...
TPG2022 Chapter I paragraph 1.76Control over a specific risk in a transaction focusses on the decision-making of the parties to the transaction in relation to the specific risk arising from the transaction. This is not to say, however, that in an MNE group other parties may not be involved in setting general policies that...
OECD COVID-19 TPG paragraph 41When considering the risks assumed by a party to a controlled transaction, tax administrations should carefully consider the commercial rationale for any purported change in the risks assumed by a party before and after the outbreak of COVID-19 (and taking into consideration the accurate delineation of such purported change). In...
TPG2022 Chapter II Annex I paragraph 2Under Illustration 1, if a taxpayer is operating with an associated manufacturer as in case 2 while the third party “comparables” are operating as in case 1, and assuming that the difference in the extent and complexity of the marketing function is not identified because of for instance insufficiently detailed...
TPG2022 Chapter IX paragraph 9.15Restructurings can take a variety of different forms and may involve two or more members of an MNE group. For example, a simple pre-restructuring arrangement could involve a full-fledged manufacturer producing goods and selling them to an associated full-fledged distributor for on-sale into the market. The restructuring could involve a...
TPG2022 Chapter IX paragraph 9.22In any analysis of risks in controlled transactions, one important issue is to assess whether a risk is economically significant, i.e. it carries significant profit potential, and, as a consequence, whether that risk may explain a significant reallocation of profit potential. The significance of a risk will depend on the...