DAC 6 – examples concerning the transfer pricing hallmarks

27 March, 2020


There is an uncertainty of what arrangements will fall under the hallmarks of the EU-directive DAC 6. Here is an in-depth article that will give you insight on transfer pricing related transactions to look closer at when establishing if you have any transfer pricing related transactions that might be reportable.

Below you will find examples under each of the transfer pricing hallmarks.



An arrangement which involves the use of unilateral safe harbor rules.

  • Safe Harbor rules can apply for less complex transactions and/or small (defined) sized companies.
  • Those can be in the form of an exemption for some specific Transfer Pricing rules and/or compliance obligations.
  • Further, those can be numeric definitions (% or %-% range etc.).
  • The safe harbor rules can also be in the form of a defined “mark-up”, “interest rate”, “royalty -%”, “cost-plus -%” etc.
  • Reportable safe harbor rules can be related to specific business functions only or companies with certain types of functional profiles, such as defined profit margins for R&D services in countries etc.
  • Examples could be the application of the Swiss safe harbor rules for intra-group loans and the specific service catalogue for low value added services in Poland.
  • Typically, APA and/or bilateral safe harbor rules are not considered as the kind of “safe harbor rules” in question. Multilateral safe harbor rules may be considered as not reportable (e.g. potentially the concept of 5 % mark-up on low value-adding services in the OECD Transfer Pricing Guidelines), depending on how the countries involved will apply those rules.



An arrangement involving transfer of hard-to-value intangibles.

The term “hard-to-value intangibles” covers intangibles or rights in intangibles for which, at the time of their transfer between associated enterprises (i) no eligible comparable exist or (ii) at the time the transaction was entered into, the projections of future cash flows or income expected to be derived from the transferred intangible, or the assumptions used in valuing the intangible are highly uncertain, making it difficult to predict the level of ultimate success of the intangible at the time of the transfer.

  • “An arrangement involving transfer of hard-to-value intangibles (HTVI).” This requires that you evaluate the potential “arrangements” that involve HTVIs, not only the HTVI itself.
  • Further, it should also be noted that “transfer” typically is not considered to be in a nature of an “open deal” or “agreement”, but any kind of “decision” that the group has made in relation with the change of business activities going-forward.
  • In general, it could be said that this clause could be applied in cases where there has been an “arrangement” where even the possibility that a transferring legal entity will earn money or that the money earning activity has been reduced or terminated – in this case you may want to consider if some value triggering elements (HTVI) have been transferred cross-border.
  • In relation with R&D function, the following “arrangements” or situations may incur the potential applicability of this specific Hallmark:
    • Firstly, the R&D should be considered to include any kind of Business Development, development of technical or marketing know-how and more specifically Research & Development of anything that is or may be valuable for the company in question (it would be assumed that any company would not even spend money for R&D projects unless those would have the preliminary idea of creating something valuable for the company going-forward).
    • If there would have been any kind of change for the R&D activities performed in some legal entity/branch which would have run these activities on its own account (i.e. financed the work with own funds and there would not have been any contract in place which would state that the R&D work would have been performed for any other company’s account i.e. contract R&D agreement), e.g. stop the R&D activity within this entity and continue it within some other country or openly “transfer” the “R&D activity or any of its outcomes” to another group company.
    • The “R&D activity and/or any of its outcomes” may be in the form of “intellectual property” related to R&D employees, scripts, patterns, know-how or business secrets (production process, supply program etc.), whether or not to be registered know-how or IP or IPR, i.e. any kind of “soon-to-be-registered” or “potentially-be-registered” or “never-to-be-registered” know-how or IP or IPR. It can also be a “code of a software”.
    • If any of these would be “transferred” out from the legal entity to another country, this “arrangement” could be considered as a “transfer” of HTVI for MDR purposes.
  • Business Licenses and/or Permits
    • These can be in the form of Country, Region, Mineral, Production function etc.
    • If any of these would be “transferred” out from the legal entity to another country, this “arrangement” could be considered as a “transfer” of HTVI for MDR purposes.
  • Business Trademarks and/or Brands
    • These are typically visually identifiable and there is some background of marketing activities behind.
    • If any of these would be “transferred” out from the legal entity to another country, this “arrangement” could be considered as a “transfer” of HTVI for MDR purposes.
  • Goodwill related to the acquired business
    • It should be noted that when a business is acquired, the purchase price allocation for IFRS purposes will include some element of identifiable or non-identifiable “goodwill” i.e. something the acquiring company will pay-off for the future profit expectations etc.
    • In the case where the acquiring company will partly or fully “write-off” the “goodwill”, could it be fair to evaluate the reason for such an action? It may be the case that the expectations at the time of acquisition were never realized, thus the “write-off” is a loss for the company. However, it might also be the case that there have been some kind of “post-deal reorganizations” of the acquired business which would have involved some kind of HTVI.
    • If there have been any “post-deal reorganizations” following the “write-off of a goodwill” in group accounts, you may want to consider if there has been a “transfer” of HTVI for MDR purposes.
  • Changes in relation with Sales processes and models
    • These are typically factual changes or transfer of a customer base (e.g. via invoicing) or transfer of sales contacts where the transferor has invested time and marketing efforts to create the sales relationships, but without making any asset deal or other
    • If there has been an open contract and/or any other kind of document defining such a transfer e.g. from FRD to LRD, then it would merely be a question of applying
    • If there have been any factual changes or transfers in functions or decision-making altering the business or transfer pricing model, it could be considered that there might have been “transferred” some HTVI for MDR purposes.
  • Changes in relation with Production processes and production lines
    • These are typically situations where a group decides to stop a product line or manufacturing of a product within one legal entity and start the same production at another product site. In this kind of a situation, the transferring manufacturing company may have obtained some trade secrets and/or manufacturing secrets that have created additional value, which may be “transferred” without any open asset deal for the legal entity “receiving” the manufacturing secrets.
    • It there have been any such factual changes or transfers, it may be considered to be a “transfer” of HTVIs for MDR purposes.



An arrangement involving an intragroup cross-border transfer of functions and/or risks and/or assets, if the projected annual earnings before interest and taxes (EBIT), during the three-year period after the transfer, of the transferor or transferors, are less than 50 % of the projected annual EBIT of such transferor or transferors if the transfer had not been made.

  • The prior DAC6E2 and the above DAC6E3 are quite close to each other from a content viewpoint (i.e. movement or change of the same business functions), but it could be argued that DAC6E3 could be applied in those “arrangements” where one can identify or point out the contract, agreement or decision in relation with the transfer of any business functions or intangible rights or changing their operating model, while in DAC6E2 this “transfer” has not been that “visible” or “identifiable”.
  • Further, any calculations of a decrease in EBIT would require that financial information related to the “arrangement” would be available, which is hard to define in relation with HTVIs.
  • If no specific HTVI have been transferred under DAC6E2, any changes in the transfer pricing model due to the transfer of functions or risk-assuming capacity, resulting in an EBIT less than 50% of the projected annual EBIT of such transferor or transferors if the transfer had not been made, may be reportable under DA6E3.


Read more:
Mandatory Disclosure Reporting (DAC 6) – a guide on practical challenges in your daily operations.
Mandatory Disclosure Reporting (DAC 6) – why it matters for multinationals
Intermediaries’ challenges with Mandatory Disclosure Reporting (DAC 6)
Guide: Control of arrangements subject to mandatory disclosure reporting
Why it is important to keep control of Mandatory Disclosure (DAC 6) in-house
A guide for implementing an MDR (DAC 6) solution