WTS Global participates in the public consultation round of the OECD, by providing extensive comments on the non-consensus discussion draft on transfer pricing aspects of financial transactions.
The OECD draft issued on 3 July 2018 can be consulted through the following link:
Comments had to be delivered by 7 September 2018, and are available for 78 interested parties, of which WTS Global was one. For your convenience, you can download the comments of WTS Global in PDF format here:
WTS Global has highlighted some fundamental concerns with certain statements in the discussion draft (next to technical comments on specific topics). The top-3 messages of WTS Global to the OECD include:
Arm’s length principle
The arm’s length principle should be confirmed to be and remain the sole standard against which conditions set in transactions between members of a multinational group as a consequence of their commercial and financial relations. Any guidance directly deviating from the arm’s length principle should be eliminated. Any guidance that indirectly may lead to a deviation of the arm’s length principle should be avoided.
It is definitely correct that transfer pricing considerations for financial transactions are to be aligned with the general principles as laid down in Chapter I of the OECD TP Guidelines, including the accurate delineation of the controlled transaction. However, it should be recognized and confirmed that financial assets are of a particular nature with particular characteristics. Most notably, they essentially represent contractual claims on underlying assets – and therefore in the risk allocation process the contractual reality should not be overlooked too easily and therefore in the double-sided functional analysis, substance in view of staffing required to make decisions on the assumption and control of risks should not be exaggerated.
The debate between taxpayer and tax administration is not helped by putting forth extreme / black & white examples and presumptions (e.g. the generalization that a treasury center would have limited functionality). The arm’s length principle deserves the appropriate nuance, further guidance in view of the burden of proof in view of potential re-characterization of transactions (exceptionality should prevail), and a broader scope for solving disputes (article 25 MTC).