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Elizabeth Stevens Weighs in on OECD Updated International Tax Proposal

October 20, 2020, Law360 Tax Authority

The Organization for Economic Cooperation and Development's updated proposal for an international tax rewrite has additional technical details but an undefined scope, with inherent practical and political complications remaining at the intersection of new rules and longstanding transfer pricing norms.

. . .

While the review and determination procedure is "fairly thoroughly fleshed out" and includes some due process for the company, the whole procedure is expected to take three or four years, according to Elizabeth Stevens, a member at Caplin & Drysdale. At that point, companies have been filing returns in every jurisdiction based on the methodology they presumably put in their advance certainty packages, she said.

"If you end up with something different, you now have to go back and amend returns and make adjustments for that entire back period," Stevens said. Under current arm's-length rules, companies with transfer pricing adjustments see their returns affected in two countries, but now with Amount A, "changes in the taxpayer's position could affect 10, 20, 30 different jurisdictions around the world," she said.

"It's going to be very burdensome for all involved," Stevens said. "It definitely won't provide 'advance' certainty."

. . .

According to Stevens at Caplin & Drysdale, the use of a formula in and of itself is no more or less likely to create disputes.

"But I think having this formula-based system on top of an arm's-length system — it creates a lot of complexity," she said. "Complexity inherently can lead to disputes because you have interactions between the two systems."

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