Safe harbour shopping — the latest trends

The Organisation for Economic Co-operation and Development Council (OECD) has released a revised version on the use of safe harbours in its Transfer Pricing Guidelines. This is welcome news for taxpayers.

Very broadly, transfer pricing rules permit tax authorities to adjust, for tax purposes, the price paid for goods and services sold or supplied between associated persons when intra-group transactions are undertaken on a non-arm’s-length basis. The rules also cover intra-group debt and related interest. In general, the transfer pricing rules require that intra-group prices and the terms and conditions of intra-group transactions abide by the arm’s-length principle. In the absence of avoidance legislation, connected companies would be able to manipulate prices to create a tax advantage, for instance by setting prices in a way that would enable profits to be located in a more favourable tax jurisdiction.

The OECD is an international economic organisation of currently 34 member states founded to stimulate economic progress and world trade. Among other objectives, it seeks to identify best practice and to co-ordinate the domestic and international policies of its members. The OECD maintains guidelines on transfer pricing, an issue that is of obvious relevance in the international context…

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