scholarly journals The Harmonisation of Transfer Pricing: the Obstacles, the Arm's Length Principle and the OECD Guidelines

2021 ◽  
Author(s):  
◽  
Duran Timms
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Legal Obligation ◽  
Fair Share ◽  
Pricing Rules ◽  
Arm’S Length Principle ◽  
Significant Obstacle ◽  
Domestic Law

<p>This essay argues that the complete harmonisation of transfer pricing rules with the arm’s length principle is unattainable for three reasons. First, states are not under a legal obligation to apply the principle outside of treaty or domestic law. Second, the theoretical shortcomings of the principle are creating a divergence from the OECD guidelines on how the principle should be applied. Third, the perception held by states that multinational enterprises are not paying a fair share of tax is also creating a divergence from the OECD guidelines on the principle. The resultant divergence is a significant obstacle to transfer pricing harmonisation.</p>

scholarly journals The Harmonisation of Transfer Pricing: the Obstacles, the Arm's Length Principle and the OECD Guidelines

2021 ◽  
Author(s):  
◽  
Duran Timms
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Legal Obligation ◽  
Fair Share ◽  
Pricing Rules ◽  
Arm’S Length Principle ◽  
Significant Obstacle ◽  
Domestic Law

<p>This essay argues that the complete harmonisation of transfer pricing rules with the arm’s length principle is unattainable for three reasons. First, states are not under a legal obligation to apply the principle outside of treaty or domestic law. Second, the theoretical shortcomings of the principle are creating a divergence from the OECD guidelines on how the principle should be applied. Third, the perception held by states that multinational enterprises are not paying a fair share of tax is also creating a divergence from the OECD guidelines on the principle. The resultant divergence is a significant obstacle to transfer pricing harmonisation.</p>

scholarly journals Corporate Income Shifting in an Era of Tax Multilateralism: The Impact of Exchange-of-Information Agreements

2021 ◽  
Vol 69 (2) ◽  
pp. 357-389
Author(s):  
Devan Mescall ◽  
Paul Nielsen
Keyword(s):  
Multinational Corporations ◽  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Empirical Studies ◽  
Annual Reports ◽  
Income Shifting ◽  
Exchange Of Information ◽  
Pricing Rules ◽  
Using Data ◽  
The Impact

Using data from the annual reports of over 100,000 subsidiaries of multinational enterprises (MNEs) from 55 countries between 2003 and 2012, the authors of this article investigate the impact of exchange-of-information agreements ("EOI agreements") on tax-motivated income shifting. Transparency created by the signing of EOI agreements is expected to reduce the tax-motivated shifting of income by multinational corporations. Whether such agreements affect the income-shifting behaviour of multinational corporations is an unanswered question. The authors find evidence that, on average, EOI agreements do have an impact on tax-motivated income shifting. Additionally, they find that more advanced, modern EOI agreements are associated with a larger decrease in tax-motivated income shifting compared to the impact of early EOI agreements. This evidence challenges the prevalent assumption in empirical studies that EOI agreements are homogeneous. Supplemental analyses suggest that factors that affect the information asymmetry between MNEs and tax authorities, such as corporations with high levels of intangibles and tax authorities with strong transfer-pricing rules and enforcement, can diminish or enhance the effectiveness of EOI agreements in moderating tax-motivated income shifting. The evidence provided by this study shows that consideration of the tax authorities' information environment and the substance of an EOI agreement is essential when assessing the impact of such an agreement on the tax behaviour of sophisticated taxpayers such as multinational corporations.

scholarly journals Transfer pricing rules in EU member states

2010 ◽  
Vol 58 (3) ◽  
pp. 243-250 ◽  
Author(s):  
Veronika Solilová
Keyword(s):  
Free Market ◽  
Transfer Pricing ◽  
Transfer Price ◽  
Market Conditions ◽  
Member States ◽  
Tax Havens ◽  
Eu Member States ◽  
Pricing Rules ◽  
Arm’S Length Principle ◽  
Accepted Standard

One of the important area of international taxes is transfer pricing. Transfer price is a price set by a taxpayer when selling to, buying from, or sharing resources with a related (associated) person. The tran­sac­tions between these persons should be assessed at their arm’s length price in according the arm’s length principle – international accepted standard – as the price which would have been agreed between unrelated parties in free market conditions. This paper is focused on the tranfer pricing rules used in particular EU Member States so as if EU Member States apply the arm’s length principle, define the related persons, apply recommendations of the OECD Guidelines, use the transfer pricing methods, require TP Documentation, exercise specific transfer pricing audit or impose specific penalties and apply APAs. Transfer pricing rules should prevent taxpayers from shifting income to related person organized in tax havens or in countries where they enjoy some special tax benefit.

scholarly journals The Main Stages of Normative Regulation of Financial Control Over Transfer Pricing in Ukraine

2021 ◽  
Vol 4 (519) ◽  
pp. 196-204
Author(s):  
M. O. Kuzheliev ◽  
◽  
I. M. Syvolap ◽  
Keyword(s):  
Transfer Pricing ◽  
National Level ◽  
Financial Control ◽  
National Legislation ◽  
Tax Legislation ◽  
Pricing Rules ◽  
Arm’S Length Principle ◽  
Constant Change ◽  
Business Entities ◽  
Stage 1

Any activity is carried out in accordance with what laws and regulations are interpreted at the national level, and often with the direct consent o n the part of the State authorities. In Ukraine, the process of forming the normative regulation for control over transfer pricing is still underway, but conceptually it is already possible to define four main stages. Stage 1 (zero stage): 2010–2013 – in the national legislation were no definitions of controlled operations and transfer pricing, but the concept of ordinary price was widely used, and the tax legislation began to distinguish the methods for its determination and the procedure for application). Stage 2 (baseline stage): 2013–2014 – a significant transformation of tax legislation took place – transfer pricing was introduced in Ukraine. Stage 3 (crucial stage): 2015–2019 – the «arm’s length principle» was introduced, which was wider than the concept of «ordinary price», and relations between business entities were now evaluated not only at the price of transactions performed, but under the conditions of such operations. Stage 4 (renewal stage): 2020–2021 – transfer pricing rules were updated: new concepts were introduced into the national legislation – international group of companies, the group’s parent company, authorized participant; a three-level transfer pricing reporting model was implemented. Thus, Ukraine undergoes a constant change of national legislation, in particular in the normative regulation of financial control over transfer pricing, which for 10 years has been transformed from control over ordinary prices in the country to control over transactions of international groups of companies whose participants are residents of Ukraine.

scholarly journals Transfer pricing and the Czech tax policy

2010 ◽  
Vol 58 (6) ◽  
pp. 465-472 ◽  
Author(s):  
Veronika Solilová ◽  
Veronika Sobotková
Keyword(s):  
Czech Republic ◽  
Open Economy ◽  
Tax Policy ◽  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Small Open Economy ◽  
Tax Base ◽  
The Czech Republic ◽  
Eu Member States ◽  
Pricing Rules

The Czech Republic as a small open economy with an extensive network of the international tax treaties for the avoidance of the double taxation prevents from shifting the tax base of the associated enterprises to countries with preferential tax regime through transfer pricing rules. Transfer pricing as one of the important areas of international taxes determines how the profits of the multinational enterprises are split between the jurisdictions in which they operate and which countries get to tax those profits. This situation may affect the global budget of the multinational enterprises and the tax reve­nues of the jurisdictions. This paper is focused on the transfer pricing rules used in the Czech Republic and makes recommendations for the Czech tax policy in this area based on the analysis of the transfer pricing rules in the EU Member States.

scholarly journals Profit shifting in Brazil and the impact of tax havens

2021 ◽  
Vol 32 (85) ◽  
pp. 95-108
Author(s):  
Alex A. T. Rathke
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Profit Maximization ◽  
Profit Shifting ◽  
Tax Havens ◽  
Tax Rate ◽  
Pricing Rules ◽  
Robust Least Squares ◽  
High Level ◽  
The Impact

ABSTRACT We investigate tax-induced profit shifting in Brazil and the impact of tax havens on the shifting behavior of firms. Profit shifting research in Brazil is virtually non-existent, although the shifting incentives in Brazil are prominent. Our research fills this gap with evidences in the novel Brazilian context. Profit shifting is a tax-minimization strategy where multinational enterprises perform intra-firm transactions to allocate taxable profits to low-tax locations. Brazil combines a remarking set of profit shifting incentives, especially a high corporate tax rate, extremely complex tax system, and distinguished transfer pricing rules. Further researches may leverage from the shifting incentives in Brazil, since it provides opportunities to investigate additional factors that affect the shifting behavior of firms. We analyze 989 transaction-by-country observations for the period of 2010-2017. Baseline analysis follows the robust least squares approach with controlling covariates. Linear estimate model derives from the conventional Cobb-Douglas production function, to analyze the impact of shifting incentives on profit maximization. We find that Brazilian firms have a high level of intra-firm transactions with related parties located in low-tax countries, especially with tax havens. It represents a strong evidence of profit shifting behavior in Brazilian firms.

scholarly journals Revised OECD Transfer pricing Guidelines and the Czech tax policy

2011 ◽  
Vol 59 (4) ◽  
pp. 301-308
Author(s):  
Veronika Solilová
Keyword(s):  
Czech Republic ◽  
Tax Policy ◽  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Practical Application ◽  
The Czech Republic ◽  
Arm’S Length Principle ◽  
Transfer Prices

In applying the international principles to the taxation of Multinational Enterprises, one of the most difficult issues that have arisen is the establishment for tax purposes of appropriate transfer prices. Transfer prices are significant for both taxpayers and tax administrations because they determine in large part the income and expenses, and therefore taxable profits, of associated enterprises in different tax jurisdictions. The Committee on Fiscal Affairs, which is the main tax policy body of the OECD, has issued a number of reports relating to the transfer pricing issues. The most important are the Transfer pricing Guidelines for multinational enterprises and tax authorities which was published in 1995. These Guidelines focus on the application of the arm’s length principle to evaluate the transfer pricing of associated enterprises, the analysis of the methods for evaluating whether the conditions of commercial and financial relations within Multinational Enterprises satisfy the arm’s length principle and discussion of the practical application of those methods. Simply, these Guidelines focus on the main issues of principle that arise in the transfer pricing area. The Committee on Fiscal Affairs continues its work in this area, on 22 July 2010 approved and released the proposed revisions to Chaps. I through III of these Guidelines and simultaneously published a new Chap. IX related to business restructuring. The revisions are the result of several years of work on comparability and the use of profit-based methods. The revised text will have a significant impact on the application of transfer pricing analysis and transfer pricing methods. The paper is focused on significant changes of newly approved Guidelines with aim to evaluate how the Czech Republic began applying the principles set out in the revised text of these Guidelines.

scholarly journals Transfer Pricing Audit Challenges and Dispute Resolution Effectiveness in Developing Countries with Specific Focus on Zimbabwe

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Favourate Yelesedzani Sebele-Mpofu ◽  
Eukeria Mashiri ◽  
Patrick Korera
Keyword(s):  
Developing Countries ◽  
Multinational Enterprises ◽  
Resource Constraints ◽  
Transfer Pricing ◽  
Specific Reference ◽  
Profit Shifting ◽  
Business World ◽  
Factors Affecting ◽  
The Core ◽  
Arm’S Length Principle

Abstract Base erosion and profit shifting activities of multinational enterprises (MNEs) have been a hot issue globally. Topical among the strategies employed by MNEs has been the issue of transfer pricing (TP). Developing countries are argued to be significantly affected by TP manipulation resulting in substantial tax revenues being lost. As a response to curb the unfavourable impacts of transfer mispricing, most developing countries have adopted the OECD TP guidelines and enacted TP legislation to regulate TP activities. The arm’s length principle is the core of TP legislation, yet it has brought challenges for tax administrators and their auditors in enforcing and assessing compliance respectively leading to disputes. In view of the ever-changing business world and continuous efforts by MNEs to minimise their tax obligations through income shifting, it was imperative to assess the factors affecting the effectiveness of TP audits and dispute resolutions as measures to enhance compliance and enforcement in developing countries, with specific reference to Zimbabwe. Findings include the lack of clarity in TP legislation, resource constraints and complexity of transactions, lack of expertise as well as the shortage of comparable data. Developing countries are encouraged to formulate clear TP regulations and invest in the capacitation of revenue authorities.

scholarly journals Analysis Method of Transfer Pricing Used by Multinational Companies Related to Tax Avoidance and its Consistencies to the Arm's Length Principle

2015 ◽  
Vol 6 (3) ◽  
pp. 341
Author(s):  
Nuraini Sari ◽  
Ririn Susanti Hunar
Keyword(s):  
Transfer Pricing ◽  
Tax Avoidance ◽  
Multinational Companies ◽  
Action Plans ◽  
Analysis Method ◽  
Pricing Rules ◽  
Arm’S Length Principle ◽  
International Tax

The purpose of this study is to evaluate about how Starbucks Corporation uses transfer pricing to minimize the tax bill. In addition, the study also will evaluate how Indonesia’s domestic rules can overcome the case if Starbucks UK case happens in Indonesia. There are three steps conducted in this study. First, using information provided by UK Her Majesty's Revenue and Customs (HMRC) and other related articles, find methods used by Starbucks UK to minimize the tax bill. Second, find Organisation for Economic Co-Operation and Development (OECD) viewpoint regarding Starbucks Corporation cases. Third, analyze how Indonesia’s transfer pricing rules will work if Starbucks UK’s cases happened in Indonesia. The results showed that there were three inter-company transactions that helped Starbucks UK to minimize the tax bill, such as coffee costs, royalty on intangible property, and interest on inter-company loans. Through a study of OECD’s BEPS action plans, it is recommended to improve the OECD Model Tax Convention including Indonesia’s domestic tax rules in order to produce a fair and transparent judgment on transfer pricing. This study concluded that by using current tax rules, although UK HMRC has been disadvantaged because transfer pricing practices done by most of multinational companies, UK HMRC still cannot prove the transfer pricing practices are not consistent with arm’s length principle. Therefore, current international tax rules need to be improved.

scholarly journals Transfer pricing and safe harbours

2013 ◽  
Vol 61 (7) ◽  
pp. 2757-2768 ◽  
Author(s):  
Veronika Solilová
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Competent Authority ◽  
Partial Solution ◽  
The Czech Republic ◽  
Advantages And Disadvantages ◽  
Arm’S Length Principle ◽  
Transfer Prices ◽  
Audit Standards ◽  
Safe Harbours

Transfer prices are significant for both taxpayers and tax administrations because they determine in large part taxable profits of associated enterprises in different tax jurisdictions. Moreover, in the context of taxation, transfer prices must be complied with the arm’s length principle. However, Multinational Enterprises have been faced daily by conflicting rules and approaches to applying the arm’s length principle, burdensome documentation requirements, inconsistent audit standards and unpredictable competent authority outcomes. Therefore, the Committee on Fiscal Affairs launched another project on the administrative aspects of transfer pricing in 2010. On 16 May 2013 as a partial solution of this project was approved by the OECD Council the Revised Section E on Safe Harbours in Chapter IV of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities. The paper is focused on significant changes of newly approved chapter IV of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities, further on analysis of practice in this area, on advantages and disadvantages of safe harbours for taxpayers and competent authorities with aim to suggest recommendations on use of safe harbours in the Czech Republic.

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