Transfer pricing refers to the mechanism by which cross-border, intra-firm transactions are priced. It is particularly relevant to the global transactions of multinational enterprises, involving the transfer of property or services.
Transfer pricing is a normal incident of the operations of multinational enterprises (MNEs). However, if transactions are mis-priced so that their true value is not well reflected, profits might effectively be shifted to low-tax or no-tax jurisdictions and losses and deductions to high-tax jurisdictions. This can deprive a country of tax revenue, reducing the amount of resources available for funding its development objectives. Apart from tax base erosion, it can also lead to double taxation, which might undermine the investment climate.
The generally accepted test of whether pricing reflects the true value of transactions, including under Article 9 of the UN Model Double Taxation Convention between Developed and Developing Countries, is whether it has occurred at arm's length, that is the price that would be paid in a market with each participant acting independently in its own interest.
United Nations Practical Manual on Transfer Pricing
The United Nations Practical Manual on Transfer Pricing for Developing Countries is a response to the need for clearer guidance on the policy and administrative aspects of applying transfer pricing analyses to the transactions of MNEs. Such guidance assists policy makers and administrators in dealing with complex transfer pricing issues, but also taxpayers in dealing with tax administrations.
Subcommittee on Article 9 (Associated Enterprises)—Transfer Pricing
Call for inputs:
- Letter from Stig Sollund: Update of the UN Transfer Pricing Manual (16 January 2014)
Comments received from:
- State Administration of Taxation of the People’s Republic of China
- Repsol S.A.
- Tax Executives Institute
- Treaty Policy Working Group
- United States Council for International Business
- Reuven Avi-Yonah and Zachee Pouga Tinhaga
- World Bank Group
- Note by the Secretariat “Transfer Pricing Issues for Consideration by the Committee” (E/C.18/2013/4)
- Note by the Secretariat “Comments on the United Nations Practical Transfer Pricing Manual for Developing Countries” (E/C.18/2013/CRP.15)
- Note by the Secretariat "Report on the Informal Meeting on Practical Transfer Pricing Issues for Developing Countries" (E/C.18/2011/5)
- Report by the Secretariat “Informal Meeting on Practical Transfer Pricing Issues for Developing Countries”