1. Jurisdictions have diverse backgrounds and may encounter different challenges in applying the arm's length principle. For instance, in situations where jurisdictions face capacity constraints or challenges associated with the identification of reliable sources of information, they may choose to apply the simplified and streamlined approach for distributors resident within their jurisdiction.
2. The design of the simplified and streamlined approach simplifies pricing of in-scope transactions by providing a solution that approximates an arm’s length outcome within the jurisdiction of the tested party. In jurisdictions that choose to apply the simplified and streamlined approach,1 such approach will be treated as providing an arm’s length outcome. In jurisdictions that do not choose to apply the simplified and streamlined approach, such approach will not be treated as providing an arm’s length outcome (including for the purposes of Article 9 of the MTC and by extension Article 25). The outcome determined under the simplified and streamlined approach by a jurisdiction is non-binding on the counter-party jurisdiction.2
3. A jurisdiction that chooses to apply the simplified and streamlined approach may choose to apply it using one of two options, which specify which party or parties can assert the simplified and streamlined approach.3 Under the first option, a jurisdiction can permit tested parties resident within its jurisdiction to elect to apply the simplified and streamlined approach. Under the second option, a jurisdiction can require the use of the simplified and streamlined approach in a prescriptive manner by its tax administration and tested parties resident in the jurisdiction and, thus, the tax administration may specify that taxpayers should apply the simplified and streamlined approach where the scoping criteria are met and the tax administration would be bound to apply it under similar circumstances.
4. Regardless of the choice by a jurisdiction between the two options, competent authorities and taxpayers should consider the relevant implications for the relief of double taxation, noting the guidance in paragraphs 4.117 and 4.131 of these Guidelines, and in Section 8 of this guidance. Taxpayers should not rely on the simplified and streamlined approach to justify that a result should be treated as an arm’s length outcome when filing their tax returns in jurisdictions that do not apply the simplified and streamlined approach.4 This would be the case for filings that are made in the jurisdiction of the tested party where the jurisdiction has not adopted the simplified and streamlined approach. It would also be the case for filings in the counterparty jurisdiction where that jurisdiction has not adopted the simplified and streamlined approach, even where the tested party is in a jurisdiction that has adopted it.
5. The arm’s length outcome for out-of-scope transactions should be evaluated strictly according to the principles articulated in the remainder of these Guidelines. Moreover, the fact that an activity does not qualify for the simplified and streamlined approach under this guidance should not be interpreted to mean that such activity generates lower or higher returns than is permissible under the simplified and streamlined approach or that the returns applied for in-scope taxpayers represents a “floor” or a “ceiling” for returns to distribution activities in general.