OECD’s New Transfer Pricing Guidelines: A Worry for Developing Countries?

This is one of the questions to be discussed at a seminar about the OECD Guidelines on Transfer Pricing (TP) for Multinational Enterprises (MNE) and Tax Administrations, co-sponsored by the Finnish Government and KEPA from June 13-15, 2012. http://taxjustice.blogspot.co.uk

Originally proposed by the OECD Council in 1995, the TP guidelines give direction on the application of the ‘arm’s length’ principle for the valuation of cross-border trade between associated enterprises for tax purposes.

At their core is a desire to combat the artificial shifting of tax profits out of OECD jurisdictions and to ensure that the tax base reported by MNEs in their country reflects the economic activity undertaken therein. They are also considered important for taxpayers as TP guidelines limit the risks of economic double taxation that may result from a dispute between two countries on the determination of the arm’s length remuneration for their cross-border transactions with associated enterprises.

No doubt of particular interest at the seminar will be the 2010 revisions to the TP guidelines addressing the transfer pricing aspects of business restructurings. In fact according to a 2007-2008 Ernst and Young survey, 74% of parent and 81% of subsidiary respondents believed that transfer pricing will be “very important” or “absolutely critical” for their organisations over the next two years. With the persistent recession such concerns continue to be relevant.

According to the OECD Observer tax authorities in developing countries who wish to implement transfer pricing legislation may focus on the most common types of transactions and sectors in their economy first, such as the exploitation of natural resources, manufacturing, or service activities. The ‘Observer’ also notes that enforcement objectives should be realistic, given the available capacity, and compliance requirements made reasonable for taxpayers in light of the size of the cross-border trade.

The OECD maintains that agreement on internationally accepted principles to help countries fight abusive transfers of profit abroad, while at the same time limiting the risk of double taxation of those profits is the first step on the road to building a stronger, cleaner and fairer world economy.


Given the track-record of the OECD in matters of ‘fairness’ it is little wonder that the seminar has been convened to suggest modifications and alternatives in the interest of developing countries.

(KEPA is the umbrella organisation of over 300 Finnish civil society organisations. Headquartered in Helsinki, KEPA has country offices in Mozambique, Nicaragua, Thailand  and Tanzania. http://kepa.fi/international/english


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