New OECD Guidance on Business Restructurings: Shedding light or creating ambiguity?

On 24 August 2016, the OECD published comments it received related to the conforming amendments to Chapter IX of the OECD Transfer Pricing Guidelines, “Transfer Pricing Aspects of Business Restructurings” which were issued on 4th July.

The comments were sent by 14 organizations and summarize the key points of what remains critical, what is significantly affected by the new guidance as well as some unclarified areas.

Chapter IX of the OECD TP guidelines (B.2) states that one very important step in a Business Restructuring Process is to analyze and understand the reasons for restructurings (including synergies) while simultaneously analyzing and documenting the expected benefits. This remains critical in the revised chapter which highlights the importance to support the decision- making process of the restructuring.

Within the scope of the revised draft are mainly:

• conversions of full-fledged distributors into limited-risk distributors, marketers, sales agents, or commissionaires
• conversion of full-fledged manufacturers into contract manufacturers or toll manufacturers for a foreign associated enterprise that may operate as a principal
• transfers of intangibles or rights in intangibles to a central entity («IP company»)
• the concentration of functions in a regional or central entity, with a corresponding reduction in scope or scale of functions carried out locally, such us procurement, sales support, supply chain logistics.

The new term included in the draft “profit potential” can be potentially confusing as it does not clarify whether a restructuring can result in a loss.

Although the draft provides guidance on the determination of the arm’s length compensation for a business restructuring and for the remuneration of post-restructuring, it seems that many commenters agree that the new draft does not clearly state that zero compensation can also be applied in an arm’s length restructuring.

Another significant point worth noting is that clarifications such as the one that MNEs are free to organize their business operations as they see fit and that tax administrations do not have the right to dictate to an MNE how to design its structure or where to locate its business operations are (still) contained in Chapter IX (paragr. 9.34). In making commercial decisions, tax considerations may be a factor. Tax administrations, however, have the right to determine the tax consequences only of the structure put in place by an MNE. This clearly states that tax authorities will not have the right to impose an unbalanced situation for an MNE in respect of tax corrections or penalties.

For further info please feel free to contact Mrs. Sagianni Anastasia , Head of TP Division at