Submission to the Subcommittee on Article 9 (Transfer Pricing) of the UN Tax Committee

The BEPS Monitoring Group has made a submission to the Subcommittee on Article 9 (Transfer Pricing) of the UN Committee of Tax Experts, available here. We suggest that it should focus on article 9 and develop alternatives to the approach focusing on transactions and functional analysis which is subjective and resource-intensive, creating problems for both taxpayers and revenue authorities, especially in developing countries.


We suggest that the Subcommittee should give high priority to a study of possible simplified transfer pricing methods. A large number of developing countries have enacted regulations on transfer pricing very recently. Many, especially least developed countries, are still considering how to formulate an enforcement strategy. Transfer pricing is an important area for developing countries, which are particularly dependent on corporate income tax revenues, especially from multinational enterprises (MNEs) that conduct activities integral to their worldwide operations within these countries’ borders and use local infrastructure and government services. Yet the application of transfer pricing rules requires considerable resources of skilled staff, which are often non-existent or at best in short supply in developing countries. This problem is greatly exacerbated by the approach adopted in the OECD Transfer Pricing Guidelines, which requires an individual ‘functional analysis’ of each enterprise. This requires expert understanding of each company’s business model and international structure, as well as of the transfer pricing rules. This is a daunting task for tax authorities even in rich countries, let alone those which are poor and less developed. The UN Practical Manual currently does include several mentions of some simplified methods, but this has not been done comprehensively or systematically.

The first section of this paper outlines the background of the development of transfer pricing rules, aiming to explain the reasons for current approaches, and analyzes the problems they create. The second section discusses the experience with simplified methods especially of some leading developing countries, and it puts forward some other suggestions which should be explored.

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