OECD Released New Transfer Pricing Guidelines


On 20 January 2022, the OECD released the 2022 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

The new TP Guidelines has mainly combined the following aspects which has been published by OECD in the BEPS framework in the past couple of years:

  • The revised guidance on the application of the transactional profit split method
  • Guidance on the application of the approach to Hard-to-Value Intangibles
  • Transfer pricing guidance on financial transactions

The application of Profit Split Method (PSM)

The new Transfer Pricing Guidelines clarify and expand on when the PSM may be the most appropriate Transfer Pricing method, as well as to provide further cases for reference by tax authorities and enterprises when applying the PSM.


OECD recognizes that the PSM should be considered as an appropriate Transfer Pricing method in the following scenarios:

  1. Each party to the transaction makes a unique and valuable contribution (a unique and valuable contribution includes not only the assets used, such as intangible assets, but also the functions performed);
  2. The business operations are highly integrated, i.e. there is an interconnection of the functions, risks and assets used undertaken by the parties to the transaction, so that the contribution of each party cannot be reliably measured separately;
  3. The parties to the transaction share significant economic risks or each party bears closely related risks separately.

On the other hand, it also emphasizes that the application of the PSM may lead to increased compliance burden of the taxpayer since it requires a lot of qualitative analysis (such as whether the contribution is unique and highly integrated and whether third parties would be willing to disclose their own internal data for applying such a PSM) as well as a lot of quantitative analysis (such as the accuracy of actual and forecast financial data of related parties as well as the consistency of accounting standards).

It should be observed that the Chinese tax authorities have increasingly advocated the application of PSM for the assessment of related-party transactions in Transfer Pricing audits or Advanced Pricing Agreements(APA) applications in recent years. Therefore, multinationals may consider to use PSM at least as a testing method to verify whether the related party transactions entered is in line with the arm’s-length principle if they have comparatively complicated operations in China.

Approaches to Hard-to-Value Intangibles

The new Transfer Pricing Guidelines provide guidance for tax authorities on the application of the approaches to Hard-to-Value Intangibles (HTVI). In practice, there are often potential information asymmetries between the taxpayer and the tax authorities in relation to HTVI.

According to the new Transfer Pricing Guidelines, the tax authorities may use the ex-post results as presumptive evidence to evaluate the reasonableness of the ex-ante Transfer Pricing arrangement. If the revised valuation result indicates that the ex-ante transfer price set is significantly lower or higher than the arm's-length price, the tax authorities may apply Transfer Pricing adjustments in accordance with the revised valuation result. From this point of view, intangible asset transactions between related parties, license fee transactions relating to intangible assets as well as cost-sharing agreements (CSA) relating to intangible assets will be subject to a higher potential Transfer Pricing risk. Please note that this has been in line with the relevant provisions for the license fee charge and CSA in the Chinese Transfer Pricing regulations.

Guidance on Financial Transactions

The new Transfer Pricing Guidelines provide further guidance on cross-border intra-group financing transactions (e.g. fund lending, cash pooling arrangements), guarantees, etc. The determination of whether a financing arrangement is characterized as debt or capital becomes a key focus of international tax and Transfer Pricing analysis, and only interest arising from a debt-based financing arrangement is eligible for pre-tax deduction. In practice, many multinational companies provide funds for equity or debt investments to their overseas subsidiaries in the form of non-interest bearing transactions. However, under the new Transfer Pricing Guidelines, these non-interest-bearing arrangements may be characterized as debt arrangements by the tax authorities and thus lead to potential tax risks. In this regard, we suggest that enterprises should conduct a comprehensive analysis of the economic substance of the financing arrangement as well as the functions and risks performed by the parties.

 From the Newsletter


Contact Person Picture

Frances Gu


+86 21 6163 5238

Send inquiry

Contact Person Picture

Shawn Yang

+8621 6163 5331

Send inquiry

 How We Can Help

Deutschland Weltweit Search Menu