Introduction to Transfer Pricing

Transfer pricing refers to the pricing of cross-border intercompany transactions. Transfer prices influence the tax base of multinational enterprises, and thus also the fiscal revenues of the countries where they are doing business. The importance of transfer pricing has significantly expanded over time and culminated with the work of the OECD on Base Erosion and Profit Shifting (BEPS). With the globalisation of business activities, the need for States to prevent tax avoidance, and the risk of double taxation faced by multinational enterprises, transfer pricing has become a key question for multinational enterprises and tax administrations alike.
Introduction to Transfer Pricing intends at providing a general introduction to the fundamentals of transfer pricing. The book is focused on explanations of the principles that apply, albeit to various extents, in most countries. Although the majority of these principles are provided by the OECD the views of other international organisations – in particular the United Nations and the European Union – are also taken into account. Moreover, the book illustrates the fundamentals of transfer pricing with concrete examples based on the structures often used by multinational enterprises when conducting cross-border business activities. Also included are relevant court cases from a variety of countries.
Among the issues and topics covered are the following:

- the arm’s length principle in theory and practice;

- transfer pricing methods;

- intercompany transactions involving intangibles and financial transactions;

- common types of transfer pricing models;

- cross-border business restructurings;

- the substance requirement for transfer pricing purposes;

- attribution of profits to permanent establishments; and

- the prevention and resolution of transfer pricing disputes.

This second edition was updated based on the 2022 OECD Transfer Pricing Guidelines and the 2021 UN Transfer Pricing Manual.