Update of the OECD Guidelines and the IVS
Update of the OECD TPG
On 20 January 2022, the Organisation for Economic Co-operation and Development (“OECD”) published an updated version of their Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (“OECD TPG”). These 2022 OECD TPG consolidate the different revisions to the guidelines that have occurred since their last update in 2017. Namely these are the revised guidance on the transactional profit split method, the guidance for the application of the approach to hard-to-value intangibles, and the improved guidance on financial transactions. These updates affect the body of the OECD TPG as well as the appendices and include changes to other parts that are necessary to keep consistency over the whole body of the guidelines.
The 2022 OECD TPG can be accessed on the website of the OECD here: https://www.oecd.org/tax/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-20769717.htm
Updated IVS
On 31 January, the updated International Valuation Standards (“IVS”) enter into force. The IVS are published by the International Valuation Standards Council with the purpose to enhance consistency and transparency throughout the global valuation profession. They comprise five general and seven asset-specific individual standards. With the 2022-update, the introduction to the IVS includes now explicit core principles of valuation standard setting and of valuation. Furthermore, a new chapter on the valuation of inventory was included. The introduction to “IVS 105 Valuation Approaches and Methods” clarifies now that multiple approaches may be used in order to arrive to a value. This is a long-standing practice but was so far not explicitly spelled out. Furthermore, the introduction to “IVS 200 Businesses and Business Interests” includes now further guidelines on what constitutes a business. Finally, besides other improvements of technical standards, the glossary has been expanded.
We typically rely on the IVS for valuations of intra-group transfers of businesses and intangibles. While the OECD guidelines acknowledge economic valuation methods and provide a general framework, the IVS fill in the substantial gaps that remain and prevent the OECD guidelines from being fully-fledged valuation standards. In these applications, the IVS can be a helpful tool to either bridge differences between national valuation standards or provide a conceptual framework, where no national standards exist.
In our view, this update of the body of the OECD TPG was necessary and is helpful to make their latest status more accessible. As mentioned, these are no substantial changes but only a consolidation of revisions and clarifications that have occurred since the 2017 OECD TPD. There are other opinions that this may increase the chance that tax administrations may now be more likely to adopt these revisions. We do not agree with this view and expect that jurisdictions with transfer pricing-experienced authorities will already have considered the separate revisions while jurisdictions with lower capacity are likely to rely more on the guidelines of the United Nations. Nevertheless, the compilation of the latest status of the OECD’s guidance in a single volume is helpful for the day-to-day work with the guidelines.
More information on the IVS can be found on the website of the International Valuation Standards Council here: https://www.ivsc.org/