The OECD Model Tax Convention provides a model for Double Tax Treaties. Relating to transfer pricing, the arm’s length principle is generally embodied in article 9 'Associated Enterprises', and article 7 'Business Profits' embodies the attribution of profits to permanent establishments.
The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2017 edition), or in short the “OECD TP Guidelines”, include detailed guidance and explanations on the arm’s length principle. The goal is providing assistance in the interpretation in national TP laws, regulations and administrative policies in view of obtaining a fair international allocation of tax revenue and to avoid (economic) double taxation. The OECD TP Guidelines is an extensive document with separate chapters covering also specific topics such as financial transactions, intangible property, business restructurings. Please note that the OECD TP Guidelines as such are so-called soft law.
Hard law refers to legal obligations that are binding on the parties involved and which can be legally enforced before a court.
For example: Belgian Income Tax Code (“BITC92”).
Soft law is used to denote agreements, principles and declarations that are not legally binding. Soft law instruments are predominantly found in the international sphere. Soft law functions as a gap-filler, giving guidance to States and other stakeholders in the absence of binding legal norms.
For example: OECD TP Guidelines.
TIPS & TRICKS
- As the OECD TP Guidelines regularly change over time, make sure you / a tax inspector is using the relevant OECD TP Guidelines for the years under audit
- Always check the relevant Double Tax Treaty as the OECD Model Tax Convention is a template (that changes regularly over time) and as such not per se represents the content of the Treaty that has been concluded between the relevant jurisdictions
The following articles are of importance regarding transfer pricing in a Belgian context
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