The Development in OECD Transfer Pricing Guidelines and the European Union's Use of These Guidelines

Eva Lærke Andersen

Student thesis: Master thesis


OECD’s guidelines in transfer pricing have developed materially during the last 10 years, although the arm’s length principle remains the key in splitting the profit in multinational groups. The biggest development has happened in chapter 1 regarding the application of the arm’s length principle and in chapter 6 regarding intangibles. For the application of the guidelines the decision-making functions have been introduced, as well as a new, six step risk analysis. However, the biggest change in TPG 2017, is the approach to intangibles. The guidelines’ chapter 6 has become 4 times as long as in the previous version from 2010, as BEPS Action 8 has replaced the chapter completely. The replacement have made room for new analyzes and concepts, such as the DEMPE-functions. The possibility to classify an intangible as a HTVI has also been introduced with the new guidelines, which gives tax authorities the right to evaluate the ex ante pricing made by the multinational groups, ex post. The EU has used OECD TPG to evaluate cases with suspected state aid in terms of tax advantages, during the last 5-10 years. This have followed the risen focus on multinational group’s tax planning, where the EU have introduced no less than two new directives on the subject since 2011. One of the more spectacular cases was the case regarding suspected state aid provided by the Netherlands to Starbucks Corporation. In this case, the European Commission concluded that the Unilateral APA between the Netherlands and the Dutch registered Starbucks subsidiary, Starbucks Manufacturing, was state aid. The transaction between Starbucks Coffee Trading and Starbucks Manufacturing was assessed not to be priced according to the arm’s length principle. Further, the transaction between Alki and Starbucks Manufacturing should not even have been acknowledged as a transaction, according to the EU. The case was evaluated based on OECD TPG 2010 however, the conclusion would not have been different, had the case been evaluated based on the new guidelines from 2017. This fact supports most tax authorities as well as the EU’s assessment of the new guidelines as a clarification rather than new regulations, making the tax authorities able to use the guidelines on income years before 2017. If the EU should have acknowledged the transaction between Alki and Starbucks Manufacturing, it is essential for Starbucks to get Alki recognized as a regular company and not as an IP box. Starbucks could move key personnel to the entity, as this would give the entity the people function, and hence the decisionmaking function, which would make it more likely to get Alki recognized as a regular company. Further, Alki needs to have the economic ability to endure market risks for the entity to be recognized as a regular company. S

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2019
Number of pages105