David Rosenbloom Comments on BEPS Discussion Draft Including Intra-Group Service Fees

Bloomberg BNA

Bloomberg BNA quoted H. David Rosenbloom concerning a discussion draft released by the OECD on November 3. The draft addresses item 10 of the OECD's action plan on base erosion and profit shifting (BEPS) and would create an allocation key for intra-group, low value-added services. For the complete article, please click on the link above to view a PDF.

Excerpt taken from the article.

Safe Harbor
The allocation key is effectively a safe harbor for routine or low-cost services, according to practitioners, who note that services transfer pricing regulations in the U.S. include a similar provision.
"I think, once again, the world is finding that the U.S. has already been there in some of these BEPS issues," said David Rosenbloom of Caplin &  Drysdale.
The OECD draft also includes more detailed descriptions of situations in which a service fee shouldn't be allowed. Those include when the fee is for a service that is already being performed by the recipient itself, and so-called shareholder services, or services that are only provided due to the service provider's role as shareholder of the recipient.
Rosenbloom said the rules could be helpful to jurisdictions that believe  that mispricing of management and service fees contribute to erosion of the tax base and shifting of profits offshore.
"It will give some source countries legitimate grounds for challenging payments going out of their countries," Rosenbloom said. "It will give them ammunition to beef up their challenges to transfer pricing."


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