The new OECD Guidelines, but maybe not so new after all?

Similar to most transfer pricing enthusiasts, I was looking forward to the 2022 OECD Guidelines which were published in January this year. Honestly, I am not sure what I was expecting, it’s not like a new method was on the horizon or that there was going to be a substantial change to the arm’s length principle, but one can always hope for some excitement?

It was not to be, and that is probably a good thing, could you imagine transfer pricing professionals trying to deal with another shock on top of Pillar 1 or 2? But back to the topic, what has actually changed?

Most websites or reference sites will tell you the following main sections have changed:

  1. The report Revised Guidance on the Application of the Transactional Profit Split Method, published on 21 June 2018.
  2. The report Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles, published on 21 June 2018.
  3. The report Transfer Pricing Guidance on Financial Transactions, published on 11 February 2020.

The point of this blog post is not to regurgitate what others have done but rather nit-pick on the things that are not obvious, unless you dig a bit deeper and share some thoughts on that.

So here are some more subtle but interesting changes from the 2017 to the 2022 OECD Guidelines:

  • Throughout the 2022 OECD Guidelines the wording of countries was changed to jurisdictions. This may seem inconsequential but I am sure our legally inclined friends find this juicy.
  • The definition of a contribution analysis, profit split method and residual analysis now refer to the relevant profits and not combined profits. This is in line with the updates to the profit split method and let’s leave that there.
  • Unique and valuable contribution is now also defined in the glossary.
  • In chapter 1 section D.1.2.2. is new. This is in line with the addition of the financial transactions chapter to align everything, but what this means is that the old 1.107 is now 1.127, so be careful if you are referencing anything after 1.107. Also cross references within the guidelines have changed.
  • Just for interest, the new profit split method write up can be found from paragraph 2.114. Luckily it is the last method in chapter 2 so no other references thereafter have been pushed out and you likely already familiar with this from the previous guidance published (see link above). Annex II to Chapter II has also been updated in line with this
  • Paragraph 5.45 references a new toolkit which should assist tax authorities with confidentiality provisions. Holding thumbs they look at this.
  • The whole of Chapter X is new to include the guidance on financial transactions. I guess we can be grateful that it wasn’t added before Chapter IX as that would have messed with more references.
  • Annex II to Chapter VI is new, so keep a look out for that. It deals with guidance for tax administrations on the application of the approach to hard-to-value intangible
  • Annex I to Chapter V which deals with the master file documentation as introduced the word group after MNE (e.g. MNE group’s financial position). This doesn’t seem to be a material change, but if you are using some sort of mapping to these tables you may want to think about updating those too.
  • There are some grammatical and format changes but I really don’t think you are interested in those? If I am wrong, maybe let me know and I will pull those out as well.

So was the wait worth it? Maybe not really in South Africa as we were already aware of the changes and our law does not refer to approved OECD Guidelines. As such, we have already implemented some of this, but other jurisdictions may not have. So it is worthwhile to check if this does change anything for you in specific jurisdictions. Maybe the change from country to jurisdiction is already working I seem to be using it already! Let me know your thoughts on the above and if it was helpful, this will help me in positioning future posts.

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