handbook-tb

Preventing avoidance of permanent establishment statuschallenging some tax-oriented structures through the PE concept andthe former have also noticed that conflict in this area can be significant.As explained in section 3.2 above, the current transfer pricingsystem — derived from the original work of Carroll and developed inthe OECD Transfer Pricing Guidelines — has fostered the attributionof (residual) value to residence countries. The freedom of contractbetween associated companies and the independence of companieswithin a group also helps to obtain this result. In fact, conversion offull-fledged manufacturers into toll manufacturers, and full distributorsinto commissionaires, very much relies on the possibility of associatedcompanies being able to shift risk through legal contracts betweencompanies of the same group. Preference in the 1995 OECD TransferPricing Guidelines for traditional methods of valuation (for example,cost-plus) has promoted this result: the local subsidiary is remuneratedon a cost-plus basis that permits the allocation of the most relevantpart of the profit to a foreign parent or associated company, usuallylocated in a favourable tax environment (without that company havinga PE in the source State), that has contractually assumed the relevantrisk from which profits will follow. With the revision of Chapters I-III,and especially Chapter II, of the OECD Transfer Pricing Guidelines in2010, a hierarchy of methods was eliminated — now there is a “mostappropriate method” rule — although a certain preference for traditionalmethods over transactional profit ones (for example, profit-split)was retained. 69In this context, Chapter IX of the OECD Transfer PricingGuidelines (2010) on business restructuring has supported separatingbusiness profits from presence in a jurisdiction because businessrestructurings that were well executed from a transfer pricing perspectivecould not be challenged even if local entities were transformedinto limited risk distributors, toll manufacturers or commissionaires.69See, for instance, C. Silberztein, “The 2010 Up-Date to the OECDTransfer Pricing Guidelines” and G. Maisto, “OECD Revision of ChaptersI-III and IX of the Transfer Pricing Guidelines: Some Comments on the Hierarchyof Methods and Re-characterization of Actual Transactions Undertaken,”in D. Weber and S. Van Weeghel, The 2010 OECD Up-Dates: Model TaxConvention and Transfer Pricing Guidelines (Alphen aan den Rijn: KluwerLaw International, 2011).361