Pricing Guidelines Research Articles

Contractual Allocation of Risks and Substance: The Acer Case

In this article, the author undertakes a thorough examination of the landmark Spanish transfer pricing Acer decision. The case refers to the denial of the deductibility of payments resulting from factoring agreements undertaken by Acer Spain – a limited risk distributor – with unrelated banks, adopted to manage liquidity risks arising from timing mismatches between its accounts payable and accounts receivable. Through a disputable interpretation of the limited risk agreement signed between Acer Spain and its principal Acer Europe, tax resident in Switzerland, the tax authorities and the National Court disregarded the allocation of said risk to Acer Spain. The Court neglected to analyse the case through the lens of the OECD Transfer Pricing Guidelines, confirmed a tax assessment that inexorably led to double taxation and gave its blessing for the use of transfer pricing rules as a general anti-abuse mechanism.

Practical Guidelines on the Implementation of Transfer Pricing Regulations in Saudi Arabia

On 30 May 2020, the Kingdom of Saudi Arabia (KSA) published updated transfer pricing (TP) guidelines to provide insight into the TP practice for taxpayers in the KSA, based on the application of the TP Bylaws. In this article, the author summarizes those TP guidelines with the objective to provide practical guidelines on the implementation of TP regulations in the KSA.

The OECD Pillar 1 Blueprint: Why Amount B Matters

In this article, the authors consider the importance of Amount B in the package of measures in the OECD Pillar 1 Blueprint, the degree of existing support in the OECD Transfer Pricing Guidelines for the use of multi-territory and industry-wide comparables and the potential relevance of different profit level indicators.

2020 Documenting Transfer Pricing under Pandemic Circumstances

The author addresses the COVID-19 transfer pricing challenges, covering the steps for analysing transfer pricing implementation, documentation processes and adjustments in 2020. The present article is based on the OECD Guidance on the transfer pricing implications of the COVID-19 pandemic and the OECD Transfer Pricing Guidelines 2017.

Tax Complexity, Tax Certainty, and the Pillar One and Two Blueprints Submission to the OECD Centre for Tax Policy and Administration in response to the Public Consultation Document on the Reports on the Pillar One and Pillar Two Blueprints, December 14, 2020

A key motivation underlying the October 2020 OECD Pillar One and Pillar Two Blueprints is the goal of reducing tax complexity for taxpayers and tax authorities. In this article, we assess the tax complexity of the Blueprints relative to the 2017 OECD Transfer Pricing Guidelines (TPG) and the 2017 United Nations Transfer Pricing Manual (TPM). We focus on one form of tax complexity, rule complexity, which measures the problems faced by taxpayers when interpreting written and unwritten tax rules. We use a novel method drawn from the literature on the complexity of algorithms and software to assess the tax complexity of the Blueprints relative to the TPG and TPM. Our analysis shows that, overall, both Blueprints exhibit greater tax complexity than either the TPG or TPM, with Pillar One being the most complex and the TPG the least complex of the four documents. We conclude with some policy recommendations for reducing tax complexity. This article is a revised version of Complexity, Tax Certainty, and the Pillar One and Two Blueprints, which was submitted by the authors to the OECD Centre for Tax Policy and Administration in response to the Public Consultation Document on the Reports on the Pillar One and Pillar Two Blueprints on December 14,2020.

Эффективная организация труда «удаленных» сотрудников: от функциональных задач к программному обеспечению

In the new realities of the world, including the COVID-19 pandemic, the paradigm of management and work organization in companies is changing. The industrial revolution and digitalization are “threatening” to replace human labor with automation, robotics and artificial intelligence. The cluster of IT companies is actively developing. The management of the companies accepted the challenge of lightning fast transfer of office employees to the remote mode. The study provides recommendations on the use of software to solve functional tasks for managing employees and remote teams. Based on a detailed analysis of the characteristics, practices of companies and price guidelines, a list of software for managing employees on remote employment is formed. The software is presented for functional tasks: discussion of operational tasks using video communications, setting and monitoring long-term tasks, document management and online accounting, quick access to services and data storage. Maintaining a healthy and developing digital corporate culture is key to the success of remote work.

Obračun transfernih cena - teorijske i praktične implikacije na rezultat

Obračun transfernih cena - teorijske i praktične implikacije na rezultat

Compatibility between the OECD’s Hard-to-Value Intangibles Methodology and the Arm’s Length Standard: What Is the Way Forward?

This article studies the compatibility between the hard-to-value intangibles (HTVIs) methodology adopted by the OECD Transfer Pricing Guidelines (OECD TPG) 2017 and the arm’s length standard (ALS). This new methodology provides tax administrations with a useful tool for dealing with the information asymmetry problem in relation to taxpayers when assessing transactions involving intangibles for which the valuation is highly uncertain. However, certain features of this new approach may contradict the ALS as enshrined in article 9(1) of the OECD Model and, consequently, as internalized at a domestic level within the income tax law and tax treaty network of many jurisdictions around the world. In this context, this article provides a comprehensive analysis of the OECD’s HTVIs methodology, from its conception in the United States to its final incorporation within the TPG, the tensions with the ALS that may lead to normative conflicts in different jurisdictions, and, lastly, the possible solutions that could amend this discrepancy.

In-Depth Analysis of the Concept of Control over Risk

With the 2017 revision of the OECD Transfer Pricing Guidelines, the OECD employs the “concept of control over risk” as the turning point in determining whether or not an associated party contractually assuming risks is entitled to receive the higher returns associated with such risks. This article provides a historical context for the concept of control over risk and critically evaluates it over risk from a tax policy, general arm’s length as well as international corporate tax framework perspective.

Saudi Arabia Publishes New Transfer Pricing Guidelines for Qualified Taxable Persons

On 30 May 2020, Saudi Arabia published new transfer pricing (TP) guidelines to provide insight and guidance concerning the TP practice in Saudi Arabia based on the application of the TP Bylaws. In this article, the author summarizes those TP guidelines with the objective of updating the qualified taxable persons regarding their legislative and administrative responsibilities under the TP regulations and to enable them to better understand the TP regulatory framework and TP documentation requirements in Saudi Arabia.

The Virus in the ALP

In this article, the authors consider various policy, technical and practical implications of the transfer pricing guidance on risk and capital in the light of the COVID-19 pandemic, with special reference to the OECD Transfer Pricing Guidelines and the arm’s length principle.

The impact of countries' transfer pricing rules on profit shifting

PurposeThis study investigates the impact of different transfer pricing rules on tax-induced profit shifting. Existing studies create different enforcement rankings of countries based on specific transfer pricing provisions on the assumption that larger penalties and more extensive information requirements imply higher tax enforcement. This assumption carries limitations related to the impact of transfer pricing rules in different countries and to the interaction of different tax rules. Instead, the authors propose a nonordered segregation of groups of countries with different transfer pricing rules, and they empirically investigate the impact of these transfer pricing rules on the profit-shifting behavior of firms.Design/methodology/approachThe authors apply the hierarchical clustering method to analyze 57 observable quantitative and qualitative characteristics of transfer pricing rules of each country. This approach allows the creation of groups of countries based on a comprehensive set of regulatory characteristics, to investigate evidence of profit shifting for each of these separate groups. Profit-shifting behavior is measured by the variation in the volume of import and export transactions between local firms and related parties located in other countries.FindingsThe results indicate that firms have a higher volume of intrafirm transactions with related parties located in countries with a lower tax rate. This result is consistent with the profit-shifting hypothesis. Moreover, the results show that relevant differences in transfer pricing rules across countries produce different effects on the volume of intrafirm transactions. The authors observe that the existence of domestic transfer pricing rules that override the OECD Transfer Pricing Guidelines may inhibit profit shifting. In addition, the results suggest that the OECD guidelines may facilitate profit shifting. Overall, it is observed that some transfer pricing rules may be more effective than others in curbing profit shifting and that firms are still able to manipulate transfer prices under some tax rules.Research limitations/implications(1) The authors focus on the Brazilian context, which provides a suitable set of profit-shifting incentives for the analysis, since it combines an extreme corporate tax rate, a highly complex tax system, and a unique set of transfer pricing rules. (2) Profit-shifting behavior is captured by the volume of intrafirm transactions. The authors would prefer to observe the transfer price directly; however, this information is not disclosed by firms, for it may represent a limitation to the investigation. Nonetheless, theory shows that the profit-shifting behavior is reflected by the manipulation of both transfer prices and intra-firm outputs.Practical implicationsThe authors find that the volume of intrafirm transactions may decrease or increase, depending on the transfer pricing system of the foreign country (including the tax-differential effect). It suggests that some transfer pricing rules are more effective than others in curtailing the profit-shifting behavior and that firms are still able to find vulnerabilities in current rules and take advantage of them in deploying a profit-shifting strategy.Social implicationsResults provide knowledge about how key differences on transfer pricing rules across countries influence the profit-shifting behavior. The results of the study may have valuable application in solving regulatory mismatches, to eliminate blind spots in transfer pricing rules and thus to contribute to the current review of OECD guidelines and to the global tax reset movement.Originality/valueRecent studies suggest that if tax-avoidance incentives are somewhat weak, it becomes difficult to observe the shifting behavior of firms. The puzzle is to check whether profit shifting is nonexistent under weak incentives or whether this is a matter of methodological limitations. The authors’ analysis is applied to a complex tax background with strong profit-shifting incentives; thus, it allows the authors to obtain robust evidences of the shifting behavior and the effect of different transfer pricing rules.

Defenders of the status quo: making sense of the international discourse on transfer pricing methodologies

Over a third of international trade happens within, rather than between, corporations. This makes establishing transfer prices – the price of transactions within and between related corporations – pivotal, as it defines corporations’ tax bills. Tax authorities worldwide follow the OECD transfer pricing guidelines and its accompanying methods for taxing corporations. This despite the guidelines’ well-documented weaknesses and even though alternative and potentially simpler methods exist. Existing literature helps explain why the OECD guidelines continue to dominate but not how those in favor of the status quo will go about defending them. We offer a novel, theory-based framework, to explain how supporters of the status quo – the epistemic community – will respond, using a combination of strategies targeting the policy discourse but also policy makers, in an effort to bolster the legitimacy of the OECD guidelines. We use discourse network analysis to study the debate on simplified transfer pricing methods from 1995 to 2018 and the positions of actors engaged. Our data confirms that the epistemic community deploys a hypothesized mix of strategies to ensure the durability of the OECD guidelines and accompanying methods, at the same time undermining the position of alternative approaches.

OS ECJ-TF 1/2020 on the General Court Decisions of 24 September 2019 in The Netherlands v. Commission (Starbucks) (Joined Cases C-760/15 and T-636/16) and Luxembourg v. Commission (Fiat Finance and Trade) (Joined Cases T-755/15 and T-759/15), on State Aid Granted by Transfer Pricing Rulings

This article provides a comprehensive exame of the decisions of the EU General Court in the cases The Netherlands v. Commission (Starbucks) (Joined Cases C-760/15 and T-636/16) (hereinafter Starbucks NL) and Luxembourg v. Commission (Fiat Finance and Trade) (Joined Cases T-755/15 and T-759/15) (hereinafter Fiat), decided on 24 September 2019. These are the first in a series of expected decisions concerning the legality of the European Commission's decisions considering certain transfer pricing rulings granted by Member States to multinational enterprises (hereinafter MNEs) to constitute State aid. The GC reached different verdicts in the two cases. Whereas in Starbucks NL it annulled the Commission's decision, in Fiat, it upheld it, ordering Luxembourg to recover the aid. Despite the different outcomes, the decisions have several commonalities in terms of how the GC interpreted the applicable European law on State aid in respect of tax matters. Therefore, they may provide an indication of how the GC will decide similar pending cases. In addition, the decisions are of paramount importance in understanding: (i) the role and limits of the Commission in reviewing rulings granted by Member States; (ii) the role of the OECD's arm's length concept and of the OECD Transfer Pricing Guidelines (2017) (the OECD Guidelines) in assessing the Treaty on the Functioning of the European Union's (TFEU) (2007) prohibition of State aid; and (iii) the level of evidence that has to be provided by the parties in these procedures. The importance of these two decisions cannot be emphasized enough. Although the Commission has apparently decided not to appeal the Starbucks NL decision, the appellants in Fiat will do so, thus seeking a final resolution from the Court of Justice of the European Union (ECJ). The latter is not bound to follow the GC and may decide the matter on points on law in a way that deprives the current decision of its jurisprudential value. It follows that the GC would have to follow the ECJ's reasoning in future decisions as to the interpretation of EU law on State aid. In the meantime, however, these GC decisions are the best guidelines that MNEs and Member States have (and will have in the near future) concerning the admissibility of their TP rulings in light of the EU State aid rules. Given the length of the two decisions and the number of topics covered, the article only focuses on issues considered to be of interest in understanding the GC's reasoning and the impact of the cases.

Which multi-attribute utility instruments are recommended for use in cost-utility analysis? A review of national health technology assessment (HTA) guidelines

BackgroundSeveral multi-attribute utility instruments (MAUIs) are available from which utilities can be derived for use in cost-utility analysis (CUA). This study provides a review of recommendations from national health technology assessment (HTA) agencies regarding the choice of MAUIs.MethodsA list was compiled of HTA agencies that provide or refer to published official pharmacoeconomic (PE) guidelines for pricing, reimbursement or market access. The guidelines were reviewed for recommendations on the indirect calculation of utilities and categorized as: a preference for a specific MAUI; providing no MAUI preference, but providing examples of suitable MAUIs and/or recommending the use of national value sets; and recommending CUA, but not providing examples of MAUIs.ResultsThirty-four PE guidelines were included for review. MAUIs named for use in CUA: EQ-5D (n = 29 guidelines), the SF-6D (n = 11), HUI (n = 10), QWB (n = 3), AQoL (n = 2), CHU9D (n = 1). EQ-5D was a preferred MAUI in 15 guidelines. Alongside the EQ-5D, the HUI was a preferred MAUI in one guideline, with DALY disability weights mentioned in another. Fourteen guidelines expressed no preference for a specific MAUI, but provided examples: EQ-5D (n = 14), SF-6D (n = 11), HUI (n = 9), QWB (n = 3), AQoL (n = 2), CHU9D (n = 1). Of those that did not specify a particular MAUI, 12 preferred calculating utilities using national preference weights.ConclusionsThe EQ-5D, HUI, and SF-6D were the three MAUIs most frequently mentioned in guidelines. The most commonly cited MAUI (in 85% of PE guidelines) was EQ-5D, either as a preferred MAUI or as an example of a suitable MAUI for use in CUA in HTA.

The Use of Paragraphs 1.119 to 1.128 of the 2017 OECD Transfer Pricing Guidelines for the Application of Transfer Pricing Rules

This article aims to analyse the paragraphs 1.119 to 1.128 of the 2017 OECD Transfer Pricing Guidelines and their relation to the comparability analysis, sham transactions and domestic anti-avoidance rules. For this purpose, the authors discuss the nature of the transfer pricing rules, the limits of the OECD transfer pricing guidelines to the application of transfer pricing rules and the main features of the comparability analysis, sham transactions and the anti-avoidance rules. It is concluded that part of these paragraphs contains recommendations that exceed the purpose of the transfer pricing rules when they are structured over the arm’s length principle. OECD Transfer Pricing Guidelines, arm’s length principle, transfer pricing rules, comparability analysis, sham transactions, anti-avoidance rules.

Forecasting of Paddy Grain and Rice's Price: An ARIMA (Autoregressive Integrated Moving Average) Model Application

A decision making for a long-term paddy grain and rice price guidelines need a future price prediction and a forecasting model that made based on time progression. The most popular model used is ARIMA. The common problem in forecasting the paddy grain and rice in Indonesia using this model was choosing the best model which fit all type of forecasting. This study aimed to determine the most appropriate ARIMA Model and forecast paddy grain and rice’s price on the farmer level, wholesale level, and international level. The prediction began after the stationary test and the best model selection conducted. The ARIMA model used was chosen by the lowest AIC and SC accuracy value. ARIMA Model used in this study were grain price on the farmer level (1,1,2), grain price on the milling level (1,1,2), rice price on the wholesale level (1,1,3), and rice price on the international level (3,1,7). The rice price prediction in the next sixth months on the farmer level was IDR 5,905.15/kg and the actual price was IDR 5,524.89/kg, on the milling level was IDR 6,014.35/kg and the actual price was IDR 5,641/kg, on the wholesale level was IDR 12,163.92/kg and the actual price IDR 12,115/kg, while the on the international level was US$ 462,065/Ton and the actual price was US$ 408/Ton. This study concluded that the price list at a different level of the market was requiring a different model of ARIMA.

The Status of the OECD Transfer Pricing Guidelines in the Post-BEPS Dynamic

Despite the vast literature on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines), its status has received little consideration. The image in the literature is that the OECD Guidelines is a significant publication, given the substantial cross-border trade between associated enterprises. In the OECD/G20 BEPS Project, the Final Report on Actions 8-10, published in 2015, revised the OECD Guidelines as part of the sweeping measures to counter aggressive tax avoidance by certain multinational enterprises (MNEs), such as Google LLC, Facebook Inc. and Apple Inc. BEPS Actions 8-10, inter alia, revised the guidance on intangibles and cost contribution arrangements to prevent profits from intangibles being allocated to low-tax jurisdictions. As anticipated, the OECD has reported that transfer pricing disputes are rising. In particular, BEPS Action 14, on dispute resolution, requires tax treaties to include article 9(2) of the OECD Model Tax Convention, on corresponding transfer pricing adjustments, in tax treaties. Moreover, BEPS Action 14 (element 1.1 of the minimum standard) requires that access to the mutual agreement procedure be available for transfer pricing cases in tax treaties and that countries implement the resulting mutual agreements. As a minimum standard, members of the Inclusive Framework are obliged to implement this measure, which further elevates the status of the OECD Guidelines, as resulting disputes will be resolved on the basis of the principles in the OECD Guidelines. The membership of the Inclusive Framework exceeds 135 countries. As there is a dearth of transfer pricing case law, the consequence is that courts have only established limited jurisprudence on the topic. One Australian transfer pricing case concluded that the OECD Guidelines had no formal status in treaty interpretation. It is asserted in this article that the OECD Guidelines is part of the Commentary accompanying the OECD Model Convention on Income and on Capital. Even so, it is argued that treaty countries should not only use the OECD Guidelines as a guidance document in their domestic rules, but expressly state in their tax treaties that the OECD Guidelines are to be used for the interpretation of the associated enterprises article. In addition, the treaty statement should specify whether the static or ambulatory approach should be applied. This article asserts that the best way forward is for the OECD to illuminate the status of the OECD Guidelines by including a clear statement in the Commentary on the intrinsic character of the OECD Guidelines and expressly identify which parts of the OECD Guidelines form part of the Commentary, adapting the approach taken in the Commentary on the business profits article incorporating the 2010 Report on the Attribution of Permanent Establishments.

Related Parties as Used in Transfer Pricing

The paper examines the scope of related party transactions falling under the OECD Transfer Pricing Guidelines (TPG) and the transfer pricing regimes of selected tax jurisdictions. The OECD TPG does not deal with the concept of associated enterprises as used in Article 9 of the OECD Multilateral Tax Convention (MTC), while Article 9 of the OECD MTC does not define the terms used to describe associated enterprises. This gives rise to the question of what exactly was intended for under the scope of Article 9 and its consequent applicability. At the same time, many jurisdictions define related party transactions for transfer pricing purposes using the concept of “control”, but countries may perceive “control” from different perspectives. The paper discusses the practical implications arising from such differences in specific scenarios, e.g. joint ventures, family owned companies, comparability and country-by-country reporting. The “closely related” concept proposed under BEPS Action 7 is also discussed. Finally, the paper concludes with some recommendations to resolve these issues. Given the increasing focus on transfer pricing, more transfer pricing disputes are expected and correspondingly a greater use of Article 9 to eliminate economic double taxation. This intensifies the need for clarity on the scope of Article 9. It would also be timely to review the scope in light of the changes that are being made to the OECD TPG.

Do WHO pharmaceutical pricing guidelines help low- and middle-income countries to price medicines rationally?

Do WHO pharmaceutical pricing guidelines help low- and middle-income countries to price medicines rationally?