BEPS Actions 8-10: Aligning Transfer Pricing Outcomes with Value Creation

Actions 8-10 address the most significant weaknesses in transfer pricing rules: the tax allocation of profits from intangibles, risk and capital, which often does not reflect actual value creation.

• Action 8: Transfer pricing for intangible assets (IP)
• Action 9: Risk and capital – substance over contractual allocation
• Action 10: High BEPS-risk transactions (services, commodities)
• Revision of the OECD Transfer Pricing Guidelines 2017
• Not a minimum standard, but recognised as best practice

The 1995 OECD Transfer Pricing Guidelines were based on the arm's length principle. With the growing importance of intangibles and global value chains, significant BEPS risks emerged: groups could contractually transfer IP to low-tax jurisdictions without real value creation there.

Actions 8-10 were addressed jointly. The 2015 final report contained revised Chapters I (arm's length principle), II (transfer pricing methods), VI (intangibles — completely rewritten), VII (intra-group services) and VIII (cost contribution arrangements) of the OECD Transfer Pricing Guidelines. These were integrated into a consolidated version of the Guidelines in 2017. In 2022, further guidance on financial transactions (Chapter X) was added. In February 2024, the Inclusive Framework published the Amount B guidance, providing a simplified approach for transfer pricing of baseline distribution activities.

Actions 8-10 apply to all intra-group transactions of multinational enterprises, in particular:

• Transfer and use of intangible assets (brands, patents, know-how)
• Intra-group financing (loans, cash pooling, guarantees, captive insurance) and risk assumption
• Intra-group services (low-value-adding services)
• Commodity transactions between related parties
• Global value chains and cost contribution arrangements (CCAs)

• Substance over contract: risks and IP returns follow control and actual function performance
• DEMPE analysis: development, enhancement, maintenance, protection and exploitation of IP determine profit allocation — mere legal ownership without performing DEMPE functions does not entitle an entity to IP returns
• Hard-to-value intangibles: use of ex-post outcomes to verify ex-ante pricing
• Simplified approach for low-value-adding services (5% cost mark-up)
• Specific rules for commodity transactions (published prices as reference)

2 corrections:
- Date for financial transactions guidance incorrect (2022-02-11 instead of 2022-01-20)
- Typo: 'Wirtschaftsgueetern' instead of 'Wirtschaftsguetern' (double e)
5 updates:
- Missing key_date and successor: Amount B (simplified approach for baseline distribution) 2024
- History fields do not mention ongoing Inclusive Framework work
- Missing key_date: Guidance on profit split method June 2018
- Missing key_date: Financial transactions guidance (Chapter X) February 2020
- Official URL uses old OECD URL schema (may no longer be accessible)
3 clarifications.
1 note.