In its capacity as an intellectual property data company, and as a small business with significant interests in transfer pricing matters, ktMINE humbly submits the following comments related to the revised Discussion Draft.
The Discussion Draft has a recurring theme, best communicated in the introduction as “rules to prevent BEPS by engaging in transactions which would not, or would only very rarely, occur between third parties.” The objective is to assure that transfer pricing outcomes are in line with value creation. One prudent way to accomplish this is by understanding the form, substance, and
valuation of transactions (a.k.a. functions, risks, and pricing) that occur between unrelated parties. In fact, the real theme of the revised discussion draft can be summarized by one question: how would independent parties behave given the tested transactions’ facts and circumstances?
Market evidence (or “comparables”) can and should be used 1) to determine the behaviors – specifically the deal structure including functions performed, risks assumed, and assets utilized – of independent parties to transactions, and 2) to determine the arm’s length pricing in such transactions. By failing to examine the behaviors of the market, tax payers and practitioners are not exercising proper due diligence to complete a prudent arm’s length analysis.
The revised discussion draft spends significant time asking “how would independent parties act given the tested transactions’ facts and circumstances”, yet lacks guidance on what market evidence exists to determine an answer. It is my hope this document begins the discussion on this matter.
Read the rest of our comments on page 571 HERE.