OECD Transfer Pricing

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  No. 10 OECD Tax Policy Studies E-commerce:Transfer Pricing and Business ProfitsTaxation «  ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT                                          FOREWORD E-COMMERCE: TRANSFER PRICING AND BUSINESS PROFITS TAXATION – NO 10 – ISBN 92-64-00720-2 © OECD 2005  3   Foreword Part I  of this publication examines the impact of developments in the area of electronic commerce on the application of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The work follows a preliminary study performed by a sub-group of Working Party No. 6 on the Taxation of Multinational Enterprises on the features of the Internet in the area of transfer pricing, entitled Communications Revolution and its Effects on Transfer Pricing. The study has been prepared by the Sub-group of Working Party No. 6 on Electronic Commerce and is published in the Tax Policy Studies series under the responsibility of the Secretary-General and the views expressed therein are not necessarily those of the Organisation and its members. The Committee on Fiscal Affairs (CFA) recognised that electronic commerce raised significant matters for Revenue authorities in a number of areas and asked the relevant subsidiary bodies to examine the implications of the communications revolution in their own work. Based upon the results of the examinations by the relevant subsidiary bodies the CFA noted that “The challenges posed to tax systems by Internet Electronic Commerce are real and governments will need to focus on how to address them in a spirit of collective co-operation. The allocation of taxing rights must be based upon mutually agreed principles and a common understanding of how these principles should be applied. Even if such a consensus is achieved, governments may find that their ability to enforce taxation may be diminished. Without such a consensus, the Internet and other new communication technologies may pose a serious challenge to governments in maintaining their revenue bases.” It was decided that “a first approach should be to examine how the existing tax provisions and the existing international tax arrangements can be applied to Internet Electronic Commerce. If the existing rules can be successfully applied, this would avoid the need for governments to examine new taxes to be applied to these activities.” The main conclusion of the preliminary study performed by a sub-group of Working Party No. 6, on the features of the e-commerce in the area of transfer pricing, was that the communications revolution did not present fundamentally new or categorically different problems for transfer pricing but had the potential to make some of the more difficult problems more common. However, the sub-group also noted that “at this point in time it is difficult to solve specific transfer pricing issues without a close examination and factual description of the elements of electronic commerce that may give rise to new or particularly difficult transfer pricing issues.” Part II  of this publication presents the final report of the Technical Advisory Group (TAG) on Monitoring the Application of Existing Treaty Norms for Taxing Business Profits. This group was set up by the OECD Committee on Fiscal Affairs in January 1999 with the general mandate to “examine how the current treaty rules for the taxation of business profits apply in the context of electronic commerce and examine proposals for
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