A Theoretical Analysis of the Development in OECD’s BEPS Project on Updating TP Aspects of Intangibles and Profit Allocation

Bartal Højgaard

Student thesis: Master thesis


The purpose of this master thesis is to analyze the development in OECD’s BEPS project on updating TP aspects of intangibles and profit allocation. In line with the globalization, worldwide intra-group trade has grown exponentially over the last decades. The current TP rules have revealed weaknesses that create opportunities for Base Erosion and Profit Shifting (BEPS), where multinational enterprises artificially shift profits to low tax countries, to minimize their overall tax burden. Therefore the OECD/G20 BEPS project was introduced in 2013 to restore confidence in the international tax system and to ensure that profit are taxed where economic activities take place and value is created. Two years later, in October 2015, final reports where delivered on all 15 action points, which included new or reinforced international standards as well as concreate measures to help countries tackle BEPS. Action points 8 and 8-9-10 were introduced to ensure arm’s length conditions for transactions that involve the use or transfer of intangibles, and to secure that TP outcomes are in line with value creation. According to the updated guidance, legal ownership of intangibles by an associated enterprise alone does not determine entitlement to returns from the exploitation of intangibles. Associated enterprises are to be compensated based on the value they create through functions performed, assets used and risks assumed in the development, enhancement, maintenance, protection and exploitation of intangibles. To determine the arm’s length price a functional analysis is necessary to make an accurate delineation of the controlled transaction by identifying the substance of the commercial and financial relations between the associated enterprises. If a party contractually assumes risk, it must also exercise control over the risk and have financial capacity to assume the risk, to be entitled to returns from the intangibles. Certain intangibles have characteristics that make them very difficult to valuate at the time the transaction. Therefore guidelines have been developed to assure appropriate pricing of hard-tovalue intangibles, which will give countries tools to address the use of information asymmetry between companies and tax authorities. Danish tax law is based on OECD’s Transfer Pricing Guidelines. Therefore Danish tax authorities can use the updated guidelines to revise previous assessment years, when the updated guidelines are implemented in Danish tax law.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages88