After a fantastic speech at TP Minds Asia 2016, we spoke to Melinda Brown from the OECD about her experience with – and advice for – BEPS and transfer pricing.
You have been incredibly involved in the BEPS Action Plans – especially those to do with profit splits and the analysis of risk and intangibles – what was that experience like and what do you hope the BEPS project will achieve?
It's been a whirlwind. Obviously it has been an incredibly exciting time to be involved in transfer pricing, particularly here at the OECD in the centre of BEPS. For me, one of the best things has been the opportunity to engage with so many experts, each with different experiences and perspectives: from countries, from business and advisory firms, and from academia and civil society. Sometimes that has been a bit overwhelming -- like when we received a thousand pages of comments on a discussion draft -- but it has also been an incredibly enriching experience. I won't deny that it's also been hard work trying to find a way through it all in such a short time.
As for what I hope the BEPS project will achieve, I genuinely hope that what we have done will contribute to fairer outcomes in transfer pricing, and by 'fair' I mean outcomes that are more arm's length and more aligned with value creation, as it is between arm's length parties. On issues like risk, I know there are many views as to the extent to which the revised guidance is 'new' or simply a reflection of existing (best) practices, and there are also differing views on how the guidance will be interpreted in practice. We can't pretend that we have created a silver bullet: that we've somehow eliminated transfer pricing disputes. But it seems to me that we've been having discussions on difficult issues like risk for many years; certainly pre-dating "BEPS" entering into our vocabulary, at least now we have an agreed framework from which to have the discussion. I don't think that should be underestimated in terms of achieving 'fair' outcomes for both taxpayers and tax administrations.
What do you think are the biggest challenges for companies working to implement BEPS?
Of course applying the rules can be complex. In the transfer pricing space, there is certainly a lot of new text to get across, and in many cases companies are facing greater disclosure requirements such as in the form of country-by-country reporting. Hopefully the greater consistency and international co-operation that has been ushered in by BEPS will help to ameliorate that.
You also work with many non-OECD countries – what are the differences that may surprise transfer pricing professionals?
One thing that practitioners might not expect is that there are people with incredibly high levels of TP expertise in the tax administrations of some developing and emerging economies. Some of them would easily match the TP experts in OECD countries. Unfortunately, they often have to deal with a lot more systemic challenges. Also, a lack of broader capacity is still definitely one of the biggest issues, though perhaps not such a surprising one.
Which issues do you foresee affecting transfer pricing in 2017?
For practitioners, I think it will continue to be implementation. Taxpayers will be preparing their first country-by-country reports, tax administrations will need to gear themselves up to deal with them and analyse the results. The revised Guidelines will need to be put into practice by everyone.
On the policy side, we will be continuing to revise the guidance on the application of profit splits, and we have a major project on financial transactions, which I am sure will provide plenty of challenges.
