Theoretical Analysis of Transfer Pricing Aspects of Intangibles and Profit Allocation in a Group

Rikke Tina Nielsen

Student thesis: Master thesis


In February 2013 OECD presented 15 Actions as a part of the BEPS project. All of the 15 Actions were crucial in dealing with the harmful tax planning many multinational entities use to avoid taxation in jurisdiction with high tax rates.
One of these Actions was Action Point 8, which dealt with the special consideration that needed to be addressed in transactions with intangibles. Action Point 8 was a further development of the old chapter 6 in Transfer Pricing Guidelines from 2010.
This master thesis contains a thorough theoretical analysis of the new Action 8-10 on aligning Transfer Pricing Outcomes with Value Creation, with the main focus on Action Point 8, the new chapter 6 in Transfer Pricing Guidelines 2010. The thesis analyse how OECD has evolved the chapter in collaboration with both tax administrations from OECD and non-OECD countries and consulting and tax advisers such as PwC, EY, Deloitte etc.. Action 8-10 from 2015 also contains a new guidance on applying the arm’s length principle, which was a further development of chapter 1 in Transfer Pricing Guidelines from 2010.
The analysis has shown that the guidance on how to deal with intangibles has changes substantially during the work with BEPS.
The legal owner is no longer pre-determined to gain profit from the ownership of the intangibles. OECD demands that the profit is allocated to the allied company, which actually performs the important functions and assumes or controls the risk.
Another new feature of Action Point 8 was the introduction of Hard-to-value-intangibles. A sub-category of intangibles that is particularly hard to value at the time of the transaction. OECD introduces new standards and methods to be used by tax administrators when dealing with this new sub-category of intangibles – methods that the tax advisers did not support in their comments to the discussion draft on this subject.
The updated guidance on applying the arm’s length principle and ensuring that profit allocation are in line with value creation, contained in Action 8-10 2015, introduced a new guidance for tax administrators on how to make sure that the controlled transaction are in line with the arm’s length principle. One of the big themes in the chapter was the handling and compensation for assuming and controlling risk. The chapter addresses the relation between risk and compensation – if a MNE does not assume or control any risk it should not be compensated as so.
It has been pointed out by tax advisors, that the risk of double taxation will increase as a result of the BEPS package. Whether this will actually be true or not and whether the package will turn out as an effective tool in the fight against harmful tax planning will show during the following years.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages83