Theoretical and Practical Analysis of the Transfer Pricing Issues Regarding Intercompany Restructuring Involving Intangibles

Sebastian Pilgård Larsson & Mads Windekilde

Student thesis: Master thesis


The main purpose of this thesis is to analyse the theoretical and practical consequences for a multinational enterprise (MNE) when applicating the 2017 edition of the OECD Transfer Pricing Guidelines (TPG) in regards to intercompany restructurings involving intangibles. In the wake of the globalization and the derived integration of economies and markets, there has been a general change in the way MNE’s structure their business from being solely country specific to more global oriented. These developments have led to gaps and discrepancies in international tax law, which have opened up opportunities for tax planning to exploit the discrepancy in order to minimise the total tax payments. This has increased the focus on aggressive tax planning and the inherent perception that it is non-compliant and undermines the integrity of the tax systems. As a result, OECD launched the project Base Erosion and Profit Shifting (BEPS), which equips countries with tools to avoid BEPS and ensure alignment between the place of taxation and value creation. In the consolidated TPG there has been far reaching revisions to the chapters regarding intangibles (VI) and business restructurings (IX). The new chapter VI has introduced a new broader definition of intangibles. In addition, there has been a change in the substance of being entitled to the returns from exploitation of intangibles, since the entitlement is now conditioned on performing and controlling functions, providing assets and assume risks related to DEMPE of the intangible. Chapter IX has also been revised in order to be conformed with the rest of TPG, which included many references to different sections of TPG. Usually business restructurings involve intangibles, hence, the chapters are to a certain extent interdependent. Business restructurings often result in changes in the way MNE’s allocate profits deriving from intangibles, where the profit split method is regarded as the best method when companies contribute with unique and valuable intangibles. In writing this thesis OECD is currently working on finishing the guidelines related to profit split and the analysis is based on the published discussion draft, which is analysed in order to understand the expected challenges for MNE. With the knowledge obtained, the practical challenges of the above-mentioned analyses are discussed in a selfdeveloped case with a multinational entity that restructures in order to relocate intangibles to its subsidiaries. The obtained knowledge also provided a basis for a discussion on whether the revisions of TPG have caused a materiel change to the arm’s length principle or it is considered a precision. The discussion concludes that the revision of TPG has caused a material change of the arm’s length principle which possibly leads to an asymmetric use of TPG between countries.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2018
Number of pages120