S. 139Profit Attribution to Agency PEs (Art 5 para 5 and 6) – Panel Discussion

The case study that served as the base for the discussions below provided for a trading company (TradeCo) in Country R and a subsidiary in Country S (SellCo). SellCo provides distribution services based upon the functional and risk profile of a commissionaire and receives a commission fee as remuneration (in form of a percentage amount based upon the sales made by SellCo on behalf of TradeCo in Country S). It is assumed that TradeCo has a PE in Country S.

Advisor 1: India says it does not agree with the AOA. So, if we leave the AOA aside, I think all of us need to be aware that, way before the OECD developed the AOA, the Australian tax office, for example, provided guidelines way back in 2007 for profit attribution to PEs. If we consider what the concept is of an agency PE, being it a commissionaire or not, there was always a difference in the concepts in civil law countries and common law countries. The agency PE is nothing but a proxy to a distributor. If you have a buy-sell distributor doing certain functions opposite to an agent that is otherwise carrying the same functions but without taking title to the products, does the country of the agent, the host country, have the right to tax the additional profits? I think the most important question is whether you consider the AOA or not. So the point is, when you have an agent which you pay an agency commission for soliciting orders, concluding contracts, etc and then the functions of that particular agent demonstrate after that he is carrying on certain functions in addition to that, e.g., dealing with the credit worthiness of the buyer (not only matching with certain particular data but also deciding whether the data is worthy enough), then we can consider that the agent is making important decisions for what the agency commission may not be enough. The agent may also make decisions about inventory management (like S. 140how much inventory needs to be stored), then the agent is actually doing something more than a pure agent and moving more towards a distributor although the products are not on the books of the agent like in the case of the buy-sell distributor. So then the delta between the profit of the distributor having the similar functional profile and the commission received by the agent should be the profit that is attributed to the agency PE. So whether you call this AOA or whether you call it just a rational transfer pricing approach, if there was a distributor carrying all of these functions or an agent doing the same, then the host country should have the right to tax these profits.

Tax authorities 1: See, if I can generate some controversy because I don’t agree with all of the conclusions reached by the presenter. I think we have to remember that the focus of BEPS was to align value creation with outcomes, and the revised guidance is attempting to align those two approches. Whether successful or not, it doesn’t really matter, but what is at stake here is the identification of the PE in the first place, and then we have to tackle the problems of Article 5(5) and what would change after BEPS. Personally, I don’t think the changes are radical. I don’t think that the allocation has be extended significantly, the wording change is neglible in my view, so I don’t think it creates new problems for the States in terms of the creation of PEs. So how does this affect the allocation or the attribution of profits to that PE? Well, I think, in that regard, I will take the issue with the case study example and would agree that the problem with examples is that the OECD always says that it is for illustrative purposes, that it is meant to show high level conceptual framework, and is not meant to draw an analysis. I think where it fails and what creates confusion is in the allocation of sales to the dependent agent. I would agree with the presenter that it does not say enough about how risks are managed, for instance, in terms of credit risks and just typically allocates the sales, and there is no further guidance on what is ‘typical’. So without properly understanding what is happening in the example, I would challenge whether it would be proper to allocate the sales to SellCo. In terms if it would be different with the AOA or not depends on whether the countries apply it. I work for a tax administration in a country with very few treaties including the AOA and, prior to that, I worked for another tax administration and again that was the case with very few treaties that included the AOA. There are a lot of reasons for that mainly to do with the fact that we did not have an MLI at that time so there was the practical problem to amend the treaties. So, the treaties and country practises may have some prohibitions of certain deductions of interest and royalties as well, does it make it different from the outcome here? Well, that would depend on the facts. If there was any evidence of an IP, whether it would be any royalties paid, the financing positions, all that would be relevant facts. So it would depend on the analysis of the facts to decide if there would be a difference on AOA or not AOA but, at the same time, I think that companies could circumvent that by setting up a third company so to be able to pay royalties or interest through a third company S. 141rather than paying internally. So, in fact, there would be no difference between AOA or not AOA even if there are payments for royalties or interest. Suppose I conclude there should be no difference in this case. It would depend on the facts and circumstances, and a lot of those key facts, I think, are missing from the example.

Chair: Thank you very much. However, I still think there are substantial differences between having or not having the AOA because, pre-AOA, you did not have a fiction of independence, you don’t know how to deal with attribution of profits to a PE in the first place. Countries that do not accept the AOA also do not say what they accept. So, in the end, you don’t have the fiction of independence, and you don’t have these deals that you need to delineate. You have paragraph 7(2) that says some deduction should happen at cost eventually, or at least there is confusion there, and then you have paragraph 7(4) that says if you have a fractional allocation approach, as long as there is still alignment with paragraph 7(2), you still can use that approach. So, there might be substantial differences between using the AOA or not using the AOA. Although these differences are not clear because, of course, if you don’t know what is the alternative to the AOA, then you cannot underline those differences clearly. Eventually, there are some countries that say if you don’t know what the alternative is, I would still behave as the AOA, but there are some others that say if I don’t want to agree with the AOA, then I am free to choose how I want to attribute profits to a PE.

Advisor 2: I think one of the differences that are always discussed for countries is whether you can allocate the total profit of the entity or whether you can remunerate the PE and then have the residual profit at the headoffice. This is one of the major differences with the AOA that basicly means that, if you remunerate the DAPE as based on the arm’s length principle and based on the proper application of the Transfer Pricing Guidelines, that could result in an entity that has an overall loss but still has a positive result for the DAPE whereas, if you don’t apply the AOA, you can only somehow allocate the profit of the entire entity which means that, if the entity has a loss, you might be allocating a loss position. So this is always a discussion but, in practice, what we always see in such situations is that countries tend to apply a mix of the different methodologies. So, they have some elements of the AOA so if you have a DAPE that has some routine functions, you should never have a loss.

Presenter: In the end, the differentiation between pre-AOA and AOA is not always clear, and it reminds me that countries tend to pick and choose whatever they like of each of the approches. So, in the end, it is clear that the difference is not that radical but, to me, the presumption in paragraph 101 is a real difference. I mean, it is not a difference between pre-AOA and after AOA, it is a difference in what can happen in a country because the starting point of many tax auditors is ‘sales are here’, and then you have to prove what you do in your head office. So, S. 142that is a real challenge. To me, that is the de facto presumption that the taxpayer has to fight. From a procedural perspective, that is really difficult for the taxpayer to fight that. About what Advisor 1 said about the link to distributors, I tend to disagree with that because, in the end, Article 5(5) in its origins was designed as an anti-abuse provision for the fixed place PE. So, if you think about Article 5(5) with that meaning, you will end up with analysing that the taxpayer is doing something in the host country according to Article 5(5).

Adsivor 1: That is why it is important to really do a FAR analysis. If it was not an agent, if you had a (different) company carrying on distribution functions, you would have done the transfer pricing analysis for that subsidiary distributor. There you have a proxy function and, if instead of a buy-sell distributor, you have an agent or a commissionaire, whatever name you call it, and he is virtually doing the same thing except for the fact that he is not taking the title for the products, why would you stop at the distribution profit? Whether it would be a one-sided test analysis or a profit split would depend on whether the sales functions are contributing to marketing intangibles. Without the marketing intangibles, I would really hesitate to go for profit split. I would go with a one-sided test, whether being a resale price or a TNMM. This is for a distributor having a similar functional profile. I am using the expression ‘having a similar functional profile’, then whatever the commissionaire is remunerated, the delta is the maximum profit that is attributed to the distributor. So, if you feel that an agent is doing much more than compared to the distributor, then you may even go up to profit split.

Chair: I think that a lot of the confusion when talking about agency PE issues comes from the fact that 5(5) and 5(6) were initially conceived for situations in which you don’t have any presence in the country. So, basically, if you don’t have a 5(1) but still have someone in that country, then you can tax with 5(5) or 5(6). But, of course, those activities that you tax with 5(5) or 5(6), you tax them because someone that you have in the country is working on behalf of the principal. But then you have another situation now in which you have someone in the country, a registered company, that is acting in its own name, so you can tax under Article 9, and there is still 5(5) and 5(6) that tell you that you can still tax more because of something that is done on behalf of someone else. So, will the taxation under Article 9 complete the taxing rights in that country, or do those activities need to be done on behalf of someone else to be compensated extra? And then comes the issue, the world is divided between people who think that Article 9 already provides enough taxing power because those people in that country are doing similar things whether they do them on behalf of themselves or other people, and there are other people that think that you have to tax the two things separately.

MNE: In regards to the comment made during the presentation that there is evidence that suggests that MNEs may abandon the commissionaire models and go to distributors. My view is: no one is saying that MNEs are changing the funcS. 143tions, assets, and risks as such. We are not saying that we change what we are doing in any way and all MNEs now need to move to an LRD and that would be fine as the discussion on the ageny profit attribution would not occur. That actually says that there is something majorly wrong with this because, quite frankly, as long as my outcome of the analysis confirms that commissionaires end up with the same outcome as what a comparable distributor would have and, in that, I could be taking flash-title of the product, have inventory, etc, I don’t have a problem. The problem starts when there is an assumption that, on top of the remuneration (that corresponds to the distributor), tax authorities want to have additional remuneration. And that is a problem if an LRD would not give you the same answer. And, in reality, to be honest, this is all about market risk and the market jurisdiction that allows making a link to the digital PEs because, if Pillar 1 works, then I actually have a different answer to that problem and then my biggest concern would be that countries now may want to use this in the same way to attribute additional profits, and then I have the digital PE issues on the top. But, in reality, if Pillar 1 works out, then hopefully the discussion of the commissionaire having any additional remuneration than the distributor would go away because the actual concern has been addressed.

Presenter: Do you think it would go away? Because, in the end, I think if you take into account Amount B and C in the end, how are you going to apply this on top of that? That is a concern to me.

MNE: For me, fundamentally, that is a problem. Any country that agrees that the functions, assets, and risks correspond to a limited risk distributor and that is also the maximun remuneration for a comparbale ageny PE, there is no problem. The fact that some countries say that MNEs should move away from the commissionaire structure or they would get a different answer, I think, would be the real problem, and we should think about whether that is the proper answer.

Tax authorities 1: I guess that we are all on violent agreement that we see here a bit of a mess, with pre-AOA, BEPS, etc and how that interacts with the rest of the Model Tax Convention. That, in part, is due to what happened in the past when we had some abusive structures where we had multinationals who had avoided any exposition to Article 9 by not having a subsidiary present in the country and then had some arrangements also avoiding having an agent, so tax administrations got frustrated that they could not allocate any profit and tax that profit in those territories. So, I think the new Article 5(5) is kind of a response to that. I am not saying it is an effective one, and I also think the world has moved on and the current comments as well on how multinationals behave with more of a sensus on tax avoidance and, of course, the digital work that made dependent agents in some ways redundant to some companies because you don’t actually need any kind of representative to make sales; it is all digital. So, the world has moved on, and I think we have to recognize that as well in this debate.

S. 144Tax authorities 2: I cannot agree more with the tax authorities’ representative. First, I would like to add something very interesting. There was praising for the 26 pages of the additional guidance document. Now, we hear the consequences if you only write 26 pages. Not saying that 208 pages from the AOA are much better. The truth is somewhere in the middle. The second point is there are two things that are moving towards each other but are not completely the same yet, I would say that the dependent agent PE discussion is the indicator of the differences. If we come to a different result, it indicates where there are differences in the approaches. The third thing is a lot on the hands of the taxpayer if you want to have troubles or not. So, if you follow having the approches in mind and do a thourough analysis of functions and risks in these scenarios, I think you would arrive at an overlaping result with limited risk of being challenged. Also, this comparison pre-AOA/after AOA is very difficult because, before, the situation was rather unclear and not the same in all countries. I found a statement in the old commentary that it was not the question of whether there is a profit realization when you transfer trading stock out of one company to the other, in this case, the commentary concludes that, in such a case, it is up to the head office to see on a case-by-case basis a bilateral solution within the outbound country where there is a serious risk of overtaxation. So, that was the guidance we had.

Chair: I think the difficult part of this is that the arm’s length principle was initially conceived to fix issues of attribution of profits to PEs, and then it also became a principle for attribution of profits to companies. So, it is clear that these two guidances try to catch up with each other, but I think they are still not on the same level. What is also interesting is that this new paper from 2018 seems to say that the guidance applies whether you use the AOA or do not use the AOA, which somehow feels a little bit incoherent with the scope of the AOA. It is great to have guidance whether you apply the AOA or not but, at the end of the day, this forces the application of the AOA on countries, even the ones that do not want to apply it.

Tax authorities 2: I think we need to differentiate pre-AOA 2008 Commentary and the full implementation of the AOA. So, we have the intermediate step in the 2008 Commentary in which the OECD made the attempt to implement everything from the AOA which was not seen as being contradictory with what was in the Commentary before. And there were relatively few reservations made. Then this, I think, is the minimum that should apply to most countries even if they have not adopted the new Article, which is the AOA. The 2008 version of the Commentary on the Model Tax Convention should apply to most of these countries.

Participant: Do you see anything wrong with a transfer pricing model in which an entity, it doesn’t matter if it is a PE or a company, provides marketing or sales services instead of providing sales through a commissionaire or a buy-sell model? Meaning that, when the profits would be tested based on the costs, not the revenue, in that market, the company or PE would be remunerated as a service S. 145provider and not as a distributor. Because what I see is that the core of the discussions leads to the same conclusion that, if you test a result with the revenue from the local market, it doesn’t matter if you have a PE or not but, of course, if you test it with the cost, then the result can be completely different.

Advisor 2: I can answer from a practical perspective. I do think there is a tendency in all countries that, if there is an activity that has something to do with the market, something to do with customers, then a sales based remuneration is considered as more appropriate. Most of the cases, the tax administrations would look at the remuneration of the managing director of the local entity and, if that managing director is remunerated on some kind of sales figure, there is a strong tendency that a sales based remuneration is considered as more appropriate than a cost based one.

Tax authorities 1: I would say that the cost based remuneration would be riskier. But the way you remunerate the company should be based on the delineation and actual facts and assumptions of the case and not whether it is considered risky or not.

Advisor 2: I think I would like to be a bit controversial. I think going back to the 2010 PE Report, in the introduction, it was stated that the objective of the Report and the AOA is to align the profit allocation between the head offices and PEs with the profit allocation in Article 9 between international related companies so there was a tendency to align the profit allocation. The basic issue was that there is no contractual relationship between a head office and a branch but, in a related party set up between two entities, you can come up with a contractual arrangement that defines the responsibilities of the parties and the risks attributable to the parties, and that was not possible in a head office and branch set up. That is why the significant people function concept was developed, and this concept should help the taxpayer to allocate the profits between the head office and branches based on a functional and risk analysis, and it was clearly said that this was applicable to the DAPE. Now, coming to BEPS 8-10 Actions in 2015, basically, there was alignment of profit allocation principles between related parties with the AOA objectives, and that alignment goes back to the significant people functions to some extent. The risk control was defined, but it was never made clear whether the risk control function concept and the significant people function concept are the same, whether they are different, or not yet the same in a S. 146certain way. Let me be controversial at this point because I think that, if alignment is the objective, they should be the same and should have the same outcome also from a practicality point of view. Coming back to the risk control function and where it differs to the significant people functions, it is about the financial capacity because that is the actual difference. The risk control function was defined as an activity that takes the decision to take on the risk, respond on risks, and mitigate the risk on a daily basis. And, at that point, I would say there is not much difference between the significant people function and the risk control function. The only difference is that there is an additional criteria that is relevant to attribute a certain risk to one of the related parties which is the financial capacity to bear the risk. This is a separate criteria. Now, if you look at the arm’s length principle, it is based on a comparison between the situation of a uncontrolled transaction and a controlled transaction. We have defined a couple of comparability criteria, and none of those criteria has something to do with the financing of one of the transactions. If a third party sells products or services, then you should not care in a normal set up with the question of whether the transaction was financed by equity or liabilities. That is not part of the way that prices are determined among third parties. So what I would say is, and that is also a bit controversial, is it actually correct to have this financial capacity as a separate criteria to attribute risk? Because you don’t have this in a third party situation. If you get rid of this, there is actually no difference between the significant people function concept and the risk control concept. But, if this is the case, what is the consequence for the determination of the profit attributable to the DAPE? I believe the consequence is that, in the majority of the cases, there should be no separate income attributable to the DAPE because, if you apply transfer pricing concepts and rules based on the new BEPS standards for the transaction between TradeCo and SellCo, you would fully remunerate SellCo for all activities including the activities on the inventory and customer credit management. So you would already attribute the risk to SellCo and take the consequences on that level and, in addition, there should be no further profit attributable to the DAPE in that case. So, I do believe that, in the majority of cases, SellCo actually has the right financial capacity comparable to a third party limited risk distributor. So, in the majority of cases, it would result on a zero-sum game for the DAPE.

Tax authorities 1: The 2010 guidance was comprehensive and did clarify a lot of confusion and introduced consistencies. I don’t think it helps in the revised guidance; they say the concepts shouldn’t be aligned, and this is a cautious approach. I am not sure why that sentence is in there. They say the terms control over risk and significant people functions should be used interchangebly, but I think is a good thing to work towards alignment. And the only difficulty I see is that, in Article 9, when we look at risks, we normally look at the compentence to manage that risk and also the financial capacity to bear that risk, and those are steps that needed to be checked and, in the context of a permanent establishment allocation S. 147of risk, we only look at the first stage of that because then the capital attributable to the PE follows the function of controlling risk. So that, I think, is the largest difference between them, and the reason why we don’t have that second test. I think it would be good to align the two concepts, and that would help in the ‘zero sum game’. As a tax administration, I am only looking at taxing the value that is created. Whether that is transfer pricing or a permanent establishment, they should be the same. It shouldn’t be more to one or the other.

Tax authorities 2: I just want to add a little difference in the approach that the AOA is formulated positively and states where things should be allocated. The control framework does kind of a negative analysis and tells you where the risk should not be allocated. Whether these concepts are 100 % aligned, they may not be yet.

Presenter: I agree that the only explanation in the 2018 document for the different attribution of profits to SellCo or to the PE is the transfer pricing risk framework, which is not really that clear. If it is, they should have explained that in the document. If it is not, is what we are doing really sound? In the first place, we should probably start saying whether an MNE has a presence in the jurisdiction regardless if it is a PE or a subsidiary, and then decide what profit should be allocated. What we are doing is so artificial that it doesn’t make sense to me at least.

Chair: One of the many issues that we are discussing also relates to the use of the single vs. dual taxpayer approach. It seems that the OECD, in the 2010 guidance, completely rejected the single taxpayer approach, however, the 2018 guidance seems a little bit more open towards, for simplification purposes, attributing profits only to the subsidiary and then extinguishing any issues with the permanent establishment.

Advisor 1: The Indian Revenue has agreed with the single taxpayer approach. The approach is to agree on what profit should be given to India for all of the functions that the agent is performing. The question is about quantifying the amount of profit that needs to be allocated to the source country for getting all of those functions. Let’s say the total profit is 20, the country does not lose if that is split between 18 plus 2, or 15 plus 5, or 20 compared to one entity. This is more from the practical standpoint. In the 2018 paper, it is said that each country should have the discretion whether to apply the single or the dual taxpayper approach from an administrative convenience standpoint. If you see it very theorically, if you are allocating the entire profit to the agent, that means you are allocating the risk of bad debts to the agent. But, if you see that in the third party scenario, if the customer doesn’t pay, the agent doesn’t get the commission but, in the related party scenario, if the customer doesn’t pay, would the agent bear this bad debt? Perhaps the answer is no. So again, I think, from a practical standpoint, the single taxpayer approach is best because, at the end of the day, the country doesn’t lose.

S. 148Chair: I agree with you. It is nice that India accepts the single taxpayer approach as long as there are profits. There is probably a different answer if there are losses. I think it is quite a controversial issue also for administrative purposes because, in some countries, you may have serious issues even when you don’t have any profit attributable to the PE, but you simply should have declared a PE and filed a tax return there, and you didn’t. So, I think for those countries, it is quite crucial to clarify whether a single taxpayer approach would be embraced, and the OECD is quite open as it seems in the 2018 Report.

Participant: For me, this question about the single or dual taxpayer approach, I really struggle here, too, because I think it is a good thing when the OECD tries to say that levying tax on a single taxpayer would be a possible thing. But, if you really take the position that, at the end of the day, you have two different taxpayers that have two different types of profits, and that would be the case when we really assume that there is something in addition that could be attributed to the dependent agent, then you have two separate taxpayers and that, from a purely Austrian domestic point of view, I have the problem that I cannot go to the local taxpayer and simply levy tax from the foreign company on him. You have to have some special rules for that, and I am not sure if Austria is the only country that would have that problem. From a pragmatic point of view, I completely agree that it would be nice if you can really remunerate all of the functions and risks at the level of the local taxpayer. Of course, in a pragmatic tax audit situation, this is absolutely what we should go for. At the end of the day when we come to the situation where we don’t have any more profits that we can allocate to our taxpayer in the domestic setting, then there are procedural boundaries from levying additional tax from a foreign taxpayer. I think that is where I see a practical problem, too.

Chair: I think that Austria and Germany are the only countries that agreed to include the single taxpayer approach in their tax treaty.

MNE: I think the interpretation is very different. I think, for Germany, it is more an understanding that, if the PE already got a fair remuneration based on transfer pricing, there isn’t anything else, and it makes no sense to have one more taxpayer. In Austria, there is a tendency to add something on top, and that brings you to this situation. If Austria was in the group of countries which accept that the activities of the local entity or PE is sufficiently compensated, you don’t have the problem. You only have a problem when you want to add something on top. I think you can split countries between the ones that are ok with the transfer pricing and they would be ok with the single taxpayer, and the ones that want something on top, and then it becomes more complicated. And I think that, for Austria and Germany, this is quite interesting because there are articles out there in which Austria actually says that essentially having a single taxpayer is only applicable for administrative simplification. This is very different from how other countries may consider the single taxpayer concept.

S. 149Participant: I understood from the very beginning that the discussion on whether there is something on the top or not was basically created by the tax administration in France to tax MNEs that were stripping functions from some subsidiaries that were selling goods, and then very low profits were attributable to those subsidiaries. The theory about the top-up of the profit was created for not being able to tax the stripping of functions. So, because they could not tax the stripped functions, they developed the theory that there was something on the top that the subsidiaries were doing, some additional functions and, by doing so, there is a possibility to tax them. But, if they have correctly taxed the stripped functions, then we would not have this issue anymore.

Chair: I think you are referring to the Zimmer case in France that was the reason for the work on BEPS Action 7 to start.

MNE: The consultancy advice that one is getting these days is to move to an LRD, but I don’t think that can be a sustainable solution. What you see in practice is that the MLI has not been adopted in all of these provisions linked to BEPS Action 7. Very few countries have actually adopted, so partially you don’t have to necessarily deal with all of them. Quite practically, you will see that the countries that would have attempted to have additional profits allocated to the PE would typically be the countries that would have attemped that even in the old world anyway so, quite frankly, in terms of change, it is not really that dramatic. It is just that now there is a different angle for the same countries to do exactly the same things. For me, personally, I think the discussion is dangerous, on the one hand, but there is also opportunity. In reality what we are talking here is not the functions and risks that we have in the market today because we are very comfortable with what we have out there and that makes sense. The question is really to look at this market component because a lot of countries seem to start wanting to tax in this direction. I understand that is really what Pillar 1 is doing at the moment. So, for me, the question is really how this will develop, whether Pillar 1 will find answers to the long list of questions that everyone will have because, if you can find the solution there, then you don’t necessarily need to use a PE for that anymore. Because the worst situation in the world is if we would keep having this difference, i.e., we keep having this market element with the PE and, on top, we do Pillar 1 because then it would get really complicated. So, for me, it is all clear S. 150that the way that the profit attribution to agency PEs is interpreted by some countries is not really sustainable because it can’t be the right answer so it is a little bit of wait and see to a certain extent which is because of the fact that not many countries have signed up for these changes in the MLI. In terms of previous issues and including this, APAs make a lot of sense. The reason why we feel comfortable with where we are is because we are in constant dialogue with competent authorities in Europe and beyond so it is absolutely important to understand how the strategies of the company will play out. The interesting thing is going to be how the APA will work out in the case that Pillar 1 moves forward, whether then the APA would make as much sense. But, in the current context, in terms of having confidence in this area, absolutely yes, and we have a strong APA network.

Chair: It would be interesting to hear the views of the tax administration about the discrepancies on what the countries have been promoting in BEPS Action 7 and their approach in the MLI. Only a few countries have agreed on those changes and that, I guess, would make it difficult, also for tax administrations, to deal with countries that eventually have different views on this topic. What do you foresee as a solution, e.g., joint tax audits, ICAP, binding mutual agreement procedures?

Tax authorities 2: First, I would like to see taxpayers that try to respect the rules and also put themselves in the shoes of the tax administration when something goes a little bit beyond what was said. The second point is, of course, I expect more clarity, and I really hope to get some more clarity about what value creation is because we have a ‘big building which is built on sand’. It is unclear what we mean by value creation and attribution of profits and what the role is of the market. We need an answer to that. Maybe it comes in the future. For the moment, try to respect the rules, try to see the risks, and make your decision on how much risk you want to take on your transfer pricing and take the offers that the tax administration has to give certainty. If you have a good willing taxpayer who wants to stay out of trouble, I think there are ways.

Tax authorities 1: With regards to dispute prevention, which is far better than dispute resolution in my experience, and I think in most people’s experience, the answer, I think, is transparency, playing fair, and dialogue. Dialogue is really important. It is also the taxpayer’s responsibility and not only up to the tax administration. Not only companies have to play fair, I also think tax administrations have to play fair. There has to be proportionality. The tax administrations have to be proportional and also pragmatic in how they apply the rules. And practical because that is in the interest of everyone. I think that is a shared responsibility. I don’t think tax administrations or companies on their own can affect change. We have to change together. Of course, we have a degree of politics that is involved, but we have to live with that. We also have to live with uncertainty because uncertainty is an ingredient of everyday business life.