Limiting Base Erosion

S. 4521. Introduction

It is a tough task to come up with something concrete and exhaustive on how to limit base erosion by improving transfer pricing rules in the evaluation of group synergies for multinational enterprises (MNEs); even articles and literature are quite scarce despite group synergies, how and more of intangibles, are the real bugbear of the arm’s length principle which constitutes the base of OECD Transfer Pricing Guidelines.

Although for intangibles many attempts have been made over the years to address their correct remuneration in intercompany transactions, and much literature is available this regard, there is little significant research or theory on group synergies. The main reason for this lies in the inherent nature of group synergies: they do not lend themselves to being evaluated under the arm’s length principle since that needs comparable transactions for its application.

Even BEPS dedicated a very poor chapter to this topic. Most likely, the most important publication, expected by June 2017, will be the guidance on the use of profit split to determine transactional net margin method range, focusing on the correlation between profit allocation factors and the creat...