Safe at Last? Transfer Pricing Safe Harbors On The Horizon

With the release last month of a discussion draft on proposed revisions to Chapter IV of its transfer pricing guidelines,¹ the OECD is poised to reverse course and endorse the use of transfer pricing safe harbors in appropriate situations. Comments from top officials indicate that the Internal Revenue Service is moving in the same direction. It is time.

''Safe harbors'' refer to a variety of possible legislative or regulatory approaches for simplifying taxpayer compliance with and tax authority administration of transfer pricing tax rules. Based on the ''arm's length'' mantra requiring cross-border, related-party transactions to be priced as if the parties were unrelated transfer pricing rules embody more principle than precision and inherently depend on complex and individualized facts.