TPG2022 Chapter IX paragraph 9.44

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Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter IX: Transfer Pricing Aspects of Business Restructurings | Tag: , , , ,
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Take the example of a conversion of a full-fledged manufacturer into a contract manufacturer. In such a case, while a cost plus reward might be an arm’s length remuneration for undertaking the post-restructuring contract manufacturing operations, a different question is whether there should be indemnification at arm’s length for the change in the existing arrangements which results in the surrender of the riskier profit potential by the manufacturer, taking into account its rights, other assets and economically relevant characteristics. Indemnification is discussed in Section F.

Related Guidelines

TPG2022 Chapter IX paragraph 9.94 Assume a manufacturing contract between two associated enterprises, entity A and entity B, is terminated by A (B being the manufacturer). Assume A decides to use another associated manufacturer, entity C, to continue the manufacturing that was previously performed by B. As noted at paragraph 9.78, there should be no...
TPG2022 Chapter IX paragraph 9.81 The accurate delineation of the transaction will identify whether an indemnification clause or arrangement is in place upon termination, non-renewal or re-negotiation of the arrangements. In order to do so, the starting point should be a review of whether an indemnification clause or similar provision for termination, non-renewal or renegotiation...
TPG2022 Chapter IX paragraph 9.45 As another example, assume a full-fledged distributor is operating under a long term contractual arrangement for a given type of transaction. Assume that, based on its rights under the long term contract with respect to these transactions, it has the option realistically available to it to accept or refuse being...
TPG2022 Chapter IX paragraph 9.83 Once the existence or absence of an indemnification clause in favour of the restructured entity upon termination, non-renewal or substantial renegotiation of the agreements has been determined, the analysis should then focus on assessing whether such indemnification clause and its terms (or absence thereof) are arm’s length. Where comparables data...
TPG2022 Chapter IX paragraph 9.76 Terminations or renegotiations of arrangements generally involve changes in the risk and functional profiles of the parties, with consequences for the allocation of profit potential between them. In addition, the termination or renegotiation of contractual relationships in the context of a business restructuring might cause the restructured entity to suffer...
TPG2022 Chapter I paragraph 1.43 However, the written contracts alone are unlikely to provide all the information necessary to perform a transfer pricing analysis, or to provide information regarding the relevant contractual terms in sufficient detail. Further information will be required by taking into consideration evidence of the commercial or financial relations provided by the...
TPG2022 Chapter II Annex II example 14 74. Below are some illustrations of the effect of choosing a measure of profits to determine the relevant profits to be split when applying a transactional profit split Scenario 1 74. Assume A and B are two associated enterprises situated in two different tax jurisdictions. Both manufacture the same widgets...
TPG2022 Chapter IX paragraph 9.89 At arm’s length, the manufacturer may mitigate the risks inherent in the investment by: Including in the contract an appropriate indemnification clause or penalties in case of early termination, or an option for the party making the investment to transfer it at a given price to the other party in...
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