Global transfer pricing guidelines: What's new in 2024?

The OECD has introduced several significant updates to the Transfer Pricing Guidelines for 2024, reflecting the evolving landscape of international taxation and the need for clarity in intercompany transactions. Here’s a look at the key changes and their implications for multinational enterprises (MNEs).

Pillar One and Pillar Two: a two-pronged approach

Pillar One primarily focuses on reallocating taxing rights to market jurisdictions, particularly where customers are located. This approach aims to address challenges posed by the digital economy, ensuring that countries can tax a portion of profits from multinational enterprises (MNEs). A significant component of this is Amount A, which allows market jurisdictions to tax residual profits of MNEs under a new Multilateral Convention (MLC)​.

Pillar Two introduces a global minimum tax rate of 15% for MNEs exceeding certain income thresholds. This aims to reduce tax base erosion and profit shifting by ensuring that profits are taxed at a minimum rate, regardless of where they are reported. Pillar Two relies on the arm’s length standard for pricing controlled transactions, maintaining the importance of traditional transfer pricing principles within the new regime​.

Simplified approach - Amount B

The OECD has also released guidance on Amount B of Pillar One, which offers a simplified and standardized method for pricing baseline marketing and distribution activities. This approach is intended to reduce the compliance burden and disputes related to these transactions by providing fixed returns derived from an updated pricing matrix. Countries can choose to adopt this approach either mandatorily or optionally, providing flexibility in its implementation​

Key revisions and clarifications

The 2024 guidelines also include updates to several chapters of the OECD Transfer Pricing Guidelines:

• Chapter IV (Administrative Approaches): Enhancements aimed at improving dispute prevention and resolution mechanisms.
• Chapter VII (Intra-Group Services): Clarifications on the benefit test and cost base determination for service remuneration, reflecting recent developments in practice and case law​

Unilateral measures and their impact

While the OECD’s guidelines aim to create a cohesive international framework, individual jurisdictions continue to implement unilateral measures, adding complexity to the transfer pricing landscape. For instance:

• Canada has utilized the "recharacterisation" rule to challenge intercompany transactions, despite facing setbacks in recent court cases​
• The UK and Australia have introduced Diverted Profits Taxes (DPTs) to counteract profit shifting through artificial arrangements, with punitive tax rates aimed at ensuring that profits reflect economic substance within their borders​

Conclusion

The 2024 updates to the OECD Transfer Pricing Guidelines represent a significant step towards greater coherence and fairness in the global tax system. By introducing simplified approaches like Amount B and continuing to address digital economy challenges through Pillar One, the OECD aims to provide clear and practical guidance for MNEs navigating complex transfer pricing issues.

For more detailed information and further reading, you can explore the full reports and updates on the OECD's official site or consult tax advisory experts for tailored advice.

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