Global Tax Alert | 23 May 2017

OECD releases implementation guidance on hard-to-value intangibles

  • Share

Executive summary

On 23 May 2017, the Organisation for Economic Co-operation and Development (OECD) released a discussion draft (the Discussion Draft or Draft) on the implementation guidance on hard-to-value intangibles (HTVI) in connection with Base Erosion and Profit Shifting (BEPS) Action 8. The Discussion Draft provides guidance on the implementation of the approach to HTVI.

The HTVI approach is stipulated in the final report on transfer pricing under BEPS Actions 8-10 (Actions 8-10 Report)1 and formally incorporated into the OECD Transfer Pricing Guidelines.2 The Discussion Draft contains three sections that present (i) the principles that should underlie the implementation of the HTVI approach, (ii) three examples to clarify the implementation of the HTVI approach in different scenarios, and (iii) the interaction between the HTVI approach and the access to the mutual agreement procedure (MAP) under the applicable treaty. The guidance included in the Draft is aimed at reaching a common understanding and practice among tax administrations on how to apply adjustments resulting from the application of the HTVI approach.

The proposals included in the Discussion Draft do not represent a consensus view of the OECD’s Committee on Fiscal Affairs, but were released in draft form in order to provide an opportunity for public comments, to be submitted by 30 June 2017.

Detailed discussion

Principles that should underlie the implementation of the HTVI approach

The treatment of HTVI for transfer pricing purposes is addressed in section D.4 of the Actions 8-10 Report.3 The guidance is developed to tackle the asymmetry of information available between taxpayers and tax administrations about the potential value of HTVI. In summary, the HTVI approach authorizes tax administrations to use ex post evidence on the financial outcomes of an HTVI transaction (i.e., information gathered in hindsight about how valuable an intangible has turned out to be) as presumptive evidence on the appropriateness of the ex ante pricing arrangements. The Actions 8-10 Report also describes certain circumstances or safe harbors where such presumptive evidence may not be used. The ex post outcomes provide information on the determination of the valuation at the time of the transaction, but a potential revised valuation should not be based on actual income or cash flow without also taking into account the probability of such income or cash flow at the time of the transfer of the HTVI.

The Discussion Draft discusses the impact of timing issues on the HTVI approach. In this respect, tax administrations should apply audit practices to identify and act upon HTVI transactions as early as possible. However, inherent to this approach, ex post outcomes relating to the transfer of the intangible may not be available shortly after the transaction. It is recognized that the elapsed time between the transaction and the moment the ex post outcomes become available to tax administrations may not always correspond with the audit cycles or administrative and statutory time periods, in particular for intangibles that will not be exploited commercially until years after the transaction.

The guidance set forth in the Draft should not be used to delay or bypass a country’s normal audit procedures. Some countries may encounter difficulties in implementing the HTVI approach due to for example short audit cycles or statute of limitations. Such countries may consider targeted changes to procedures or legislation to counter these implementation difficulties, such as mandatory prompt notifications in the case of a HTVI transfer or an amendment of the normal statute of limitations.

The Discussion Draft reiterates that adjustments by tax administrations may include an adjustment of the pricing structure adopted by the taxpayer. The Draft also provides the principles that should underpin the HTVI approach, consistent with the guidance on HTVI in section D.4 of the Actions 8-10 Report.


The examples included in the Discussion Draft illustrate the practical implementation of a transfer pricing adjustment arising from the application of the HTVI approach. Example 1, scenario A, describes the case in which a taxpayer cannot demonstrate that it properly took into account a – not unforeseeable – possibility. As a result, the tax administration may use the presumptive evidence to determine that this possibility should have been taken into account in the valuation. The original valuation is revised accordingly, and the tax administration is entitled to make a transfer pricing adjustment for the difference in value. Scenario B of example 1 describes a situation in which exemption iii of paragraph 6.193 of the Actions 8-10 Report (20% divergence margin) would be applicable and the HTVI approach therefore does not apply.

In example 2, similar to example 1, the application of the HTVI approach results in the tax administration being entitled to make an adjustment. In this example, the significant revisions to the lump-sum payment give rise to the consideration of whether an alternative payment structure (e.g., a combination of an initial lump sum payment and additional contingent payments based on key milestones) might be more appropriate. The alternative payment structure may be (more) consistent with the fact that specific developments are not sufficiently predictable. Such alternative payment structure could be based on observations of pricing arrangements for transfers of intangibles in comparable circumstances in the same business sector.

Example 3 illustrates that any primary adjustment to be assessed and any corresponding adjustment to be granted in open years will be determined in accordance with the domestic law of each country and the rules on statute of limitations applicable to the transaction(s). The Draft stimulates countries to resolve any cases of double taxation under the MAP in the relevant treaty that relate to differences in countries’ statute of limitations.

HTVI and the mutual agreement procedure

The Actions 8-10 Report stresses the importance of permitting the resolution of cases of double taxation arising from the application of the HTVI approach through access to the MAP under the applicable treaty. The Discussion Draft should therefore be read in conjunction with the final report on BEPS Action 14.


The Discussion Draft contains proposed implementation guidance on the approach to HTVI. The guidance included in the Draft should improve tax administrations’ consistency in applying the HTVI approach and reduce the risk of economic double taxation in case of intercompany transactions relating to such intangibles.

It is important for companies to continue to monitor the developments in this area in the OECD and in the countries in which they operate, and to consider actively engaging with policymakers in this international tax debate.


1. See EY Global Tax Alert, OECD releases final reports on BEPS Action Plan, dated 6 October 2015.

2. See EY Global Tax Alert, OECD Council approves changes to OECD Transfer Pricing Guidelines to incorporate BEPS reports, dated 9 June 2016.

3. For a more detailed explanation on the HTVI approach, see EY Global Tax Alert, OECD issues final guidance on transfer pricing for intangibles under BEPS Action 8, dated 13 October 2015.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Transfer Pricing, Rotterdam
  • Ronald van den Brekel
    +31 88 407 9016
Ernst & Young LLP, Global Tax Desk Network, New York
  • Jose Bustos
    +1 212 773 9584

EYG no. 03394-171Gbl