Transfer Pricing

Tax Cooperation Policy Brief 3, August 2018

Interaction of Transfer Pricing & Profit Attribution: Conceptual and Policy Issues for Developing Countries

Till 2010, model tax conventions treated profit attribution to permanent  establishments  and transfer  pricing under  different  articles,  and  profit  attribution under Article  7  allowed sales to be taken into account both in the direct accounting method as well as the indirect apportionment  method.  However,  the  revised  Article  7  in  the  2010 update of the OECD Convention approximated profit  attribution  with  transfer  pricing  and  omitted  the option  of  apportionment,  thereby  undermining  sales  and contributions   made   by   market   jurisdiction   to   business profits. When a tax treaty retains Article 7 based on the UN Convention  or  the  earlier  OECD  Convention,  Contracting States  can  take  sales  into  account  and  also  opt  for  apportionment.  Developing  countries  need  to  fully  understand these implications of  Article  7 in their tax treaties, and opt for informed choices for transfer pricing and profit attribution  to  permanent  establishments,  including  apportionment that takes sales into account.

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Tax Cooperation Policy Brief 2, May 2018

Transfer Pricing: Concepts and Practices of the ‘Sixth Method’ in Transfer Pricing

Many developing countries are particularly concerned with problems of transfer pricing in the extractive industries, which are often significant components of their economies. Similar to other sectors, profit attribution may be highly dependent on the valuation of commodity exports. For this reason, a number of developing countries have adopted the ‘Sixth Method’, following the Argentine experience. This method aims to establish a clear and easily administered benchmark and avoid the need for subjective judgment and discretion.

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