BEPS Action Plan - Mazars comments on Action 10

The Comments are published on the Organization for Economic Co-operation and Development (OECD) website. Mazars’ International Tax Policy Team welcomes the progress that the OECD has made to date and was very pleased to provide our input on the Discussion Draft. The BEPS Action Plan, containing 15 action points, focuses on tackling aggressive tax planning and tax avoidance by multinational companies. We agree it is vital to arrive at a common set of rules that provide investors with a safe, sound environment and that unilateral action by counties is to be avoided.

Action 10 targets the transfer pricing aspects of cross-border commodity transactions that may lead to base erosion and profit shifting. The commodity sector provides the major source of economic activity for many countries, in which it contributes significantly to employment, government revenues, income growth and foreign exchange earnings.

Accordingly, for many of these countries, dependence on commodities has defined their economic policy (making commodity exports the primary driver of growth and investment) and development trajectory. These countries reported the following key transfer pricing issues:

1. The use of pricing date conventions which appear to enable the adoption by the taxpayer of the most advantageous quoted price;
2. Significant adjustments to the quoted price or the charging of significant fees to the taxpayer in the commodity producing country by other group companies in the supply chain (e.g. processing, transportation, distribution, marketing); and,
3. The involvement in the supply chain of entities with apparently limited functionality, which may be located in tax opaque jurisdictions with nil or low taxation.

The overall objective of the OECD work is to create greater consistency in the way taxpayers and tax administrations determine the pricing of commodities under the arm’s length principle. The proposals take into account concerns expressed by some tax administrations about the difficulty they face in obtaining information to verify the price of commodities, including pricing date conventions and comparability adjustments. The proposed guidance seeks to ensure that pricing reflects value creation, thereby protecting the tax base of commodity dependent countries by ensuring that parties performing value-adding functions in relation to the commodity being transferred are remunerated with arm’s length compensation.

If you would like to know more, please contact Tim Davies.