Advertisement

Transfer Pricing Rules for SMEs in the EU

  • Veronika Solilova
  • Danuse Nerudova
Chapter
  • 1.1k Downloads
Part of the Contributions to Management Science book series (MANAGEMENT SC.)

Abstract

The aim of this chapter is to provide the background of transfer pricing rules from both the theoretical and practical points of view. The arm’s length principle is considered a key pillar of the rules; therefore, great emphasis is placed on explaining these rules as well as their history and practical application. The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter TP Guidelines) provide guidance for applying the arm’s length principle to pricing for tax purposes and to cross-border transactions between associated enterprises; therefore, the chapter provides a detailed explanation of the TP Guidelines, particularly a comparability analysis, which is considered the core issue in the application of the arm’s length principle, transfer pricing methods, and documentation requirements and administrative approaches to transfer prices. However, TP Guidelines make no direct distinction between types or sizes of multinational enterprises; i.e., all enterprises, regardless of their size, are subject to the same principles and recommendations. Therefore, the chapter also focuses on transfer pricing rules in relation to SMEs, critical concerns in transfer pricing and compliance costs issues. The last part focuses on recommendations, namely, an introduction of safe harbour and common (consolidated) corporate tax base.

Notes

Acknowledgement

The chapter is the result of the GA ČR no. 15-24867S “Small and medium size enterprises in global competition: Development of specific transfer pricing methodology reflecting their specificities”.

References

  1. Avi-Yonah RS, Benshalom I (2010) Formulary apportionment – myths and prospects. Empirical Legal Studies Center working paper no. 10-029. University of Michigan Law SchoolGoogle Scholar
  2. Avi-Yonah RS, Clausing KA (2007) Reforming corporate taxation in a global economy: a proposal to adopt formulary apportionment. The Hamilton Project. http://www.hamiltonproject.org/assets/legacy/files/downloads_and_links/Reforming_Corporate_Taxation_in_a_Global_Economy-_A_Proposal_to_Adopt_Formulary_Apportionment.pdf. Accessed 20 Jul 2017
  3. Bakker A (2009) Transfer pricing and business restructurings streamlining all the way. IBFD, AmsterdamGoogle Scholar
  4. Bartelsman E, Beetsma R (2000) Why pay more? Corporate tax avoidance through transfer pricing in OECD countries. Tinbergen Institute discussion paper no. 00-54/2. http://www.rrojasdatabank.info/wir2006/pricetransfer.pdf. Accessed 02 May 2017
  5. Buus T (2009) Vhodný kalkulační vzorec s ohledem na rozhodování o ceně (transferové ceně) a maximalizaci hodnoty podniku. Český finanční a účetní časopis 4(2):33–45Google Scholar
  6. Carrol MB (1933) Taxation of foreign and national enterprises: vol IV, Methods of allocating taxable income. http://archive.org/stream/taxationofforeig031922mbp/taxationofforeig031922mbp_djvu.txt. Accessed 21 Nov 2012
  7. Chittenden F, Michaelas N, Poutziouris P (2000) Small business taxation: an agenda for growth. Manchester Business School, EDCGoogle Scholar
  8. Clark D, Mitra A, Mensch J (2008) Considering transfer pricing in tax planning. In: Green G (ed) Transfer pricing manual. BNA International, London, pp 262–282Google Scholar
  9. Cottani G (2016) Transfer pricing. IBFD, online updated at November 2016, IBFD Research PlatformGoogle Scholar
  10. Durst MC (2010) It’s not just academic: the OECD should reevaluate transfer pricing laws. Tax Analysts, 18 January. https://www.taxjustice.net/cms/upload/pdf/Durst_1001_OECD_-_not_just_academic.pdf. Accessed 20 Jul 2017
  11. Durst MC (2011) The two worlds of transfer pricing policymaking. Tax Notes, 24 January. https://www.taxjustice.net/cms/upload/pdf/Durst_1101_Tax_Notes_TP.pdf. Accessed 20 Jul 2017
  12. EU Council (2006) Code of conduct on transfer pricing documentation for associated enterprises in the European Union (EU TPD), (2006/C176/01). http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:42006X0728(01)&from=EN. Accessed 21 May 2017
  13. EU JTPF (2005) Report on the activities of the EU joint transfer pricing forum in the field of documentation requirements. DOC: JTPF/020/REV4/2004/EN. https://ec.europa.eu/taxation_customs/sites/taxation/files/docs/body/12th-legis_rep_en.pdf. Accessed 15 May 2017
  14. EU JTPF (2011) Guidelines on low value adding intra-group services. COM(2011) 16 final. http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transfer_pricing/forum/c_2011_16_en.pdf. Accessed 20 May 2017
  15. EU JTPF (2016) Report on the use of comparables in the EU. DOC: JTPF/007/2016/FINAL/EN. https://ec.europa.eu/taxation_customs/sites/taxation/files/jtpf0072017encomps.pdf. Accessed 20 Jun 2017
  16. European Commission (2001) Company taxation in the internal market. Commission Staff working paper, SEC(2001)1681. https://ec.europa.eu/taxation_customs/sites/taxation/files/docs/body/company_tax_study_en.pdf. Accessed 15 Jun
  17. European Commission (2003) Recommendation 2003/361/EC of 6 May 2003. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2003:124:0036:0041:en:PDF. Accessed 10 Feb 2017
  18. European Commission (2016a) Proposal for a directive of the European Parliament and of the Council Amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches. COM(2016) 198 final. http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016PC0198&from=EN. Accessed 20 Jun 2017
  19. European Commission (2016b) Council Directive (EU) 2016/881 of 25 May 2016 Amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation. http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016L0881&from=en. Accessed 15 Jun 2017
  20. European Commission (2016c) Commission Staff working document impact assessment assessing the potential for further transparency on income tax information accompanying the document proposal for a Directive of the European Parliament and of the Council Amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches. SWD(2016) 117 final. http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016SC0117&from=EN. Accessed 15 Jun 2017
  21. European Parliamentary Research Service (2015) Aggressive corporate tax planning under scrutiny. http://www.europarl.europa.eu/RegData/etudes/ATAG/2015/571345/EPRS_ATA(2015)571345_EN.pdf. Accessed 20 Jun 2017
  22. Hines JR Jr, Rice EM (1994) Fiscal paradise: foreign tax havens and American business. Q J Econ 109(1):149–182CrossRefGoogle Scholar
  23. Huizinga H, Laeven L (2006) International profit shifting within multinationals: a multi-country perspective. European economy, Economic papers 260. http://ec.europa.eu/economy_finance/publications/publication590_en.pdf. Accessed 15 May 2017
  24. IBFD (2017) Transfer pricing. Tax research platform. Selected countries: Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Greece, Netherlands, Hungary, Ireland, Italy, Latvia, Luxembourg, Poland, Portugal, Romania, Slovenia, Slovak Republic, Spain, Sweden, United KingdomGoogle Scholar
  25. Keuschnigg C, Devereux M (2013) The arm’s length principle and distortions to multinational firm organization. J Int Econ 89(2):432–440CrossRefGoogle Scholar
  26. King E (2010) Transfer pricing and corporate taxation; problems, practical implications and proposed solutions. Springer, New YorkGoogle Scholar
  27. Kratzer C (2008) Transfer pricing methods. In: Green G (ed) Transfer pricing manual. BNA International, London, pp 21–55Google Scholar
  28. Murphy R (2012) Country-by-country reporting, accounting for globalisation locally. Tax Justice Network. http://www.taxresearch.org.uk/Documents/CBC2012.pdf. Accessed 20 Jul 2017
  29. OECD (1977) Model tax convention on income and capital, condensed version. http://online.ibfd.org/collections/ttmodel/html/tt_o2_02_eng_1977_cm__td1.html#tt_o2_02_eng_1977_cm. Accessed 13 Nov 2012
  30. OECD (1992) Model tax convention on income and capital: condensed version. OECD, ParisGoogle Scholar
  31. OECD (1997) Transfer pricing guidelines for multinational enterprises and tax administrations. OECD, ParisGoogle Scholar
  32. OECD (2001) Businesses’ views on red tape. Administrative and regulatory burdens on small and medium-sized enterprises. OECD, ParisGoogle Scholar
  33. OECD (2010a) Model tax convention on income and capital: condensed version. OECD, ParisGoogle Scholar
  34. OECD (2010b) Transfer pricing guidelines for multinational enterprises and tax administrations. OECD, ParisGoogle Scholar
  35. OECD (2011) Multi-country analysis of existing transfer pricing simplification measures. http://www.oecd.org/tax/transfer-pricing/48131481.pdf. Accessed 20 Feb 2016
  36. OECD (2012) Multi-country analysis of existing transfer pricing simplification measures. http://www.oecd.org/tax/transfer-pricing/50517144.pdf. Accessed 20 Feb 2016
  37. OECD (2013a) Addressing base erosion and profit shifting report. http://www.oecd.org/tax/addressing-base-erosion-and-profit-shifting-9789264192744-en.htm. Accessed 20 Feb 2017
  38. OECD (2013b) Revised Section E on safe harbours in chapter IV of the transfer pricing guidelines. http://www.oecd.org/ctp/transfer-pricing/Revised-Section-E-Safe-Harbours-TP-Guidelines.pdf. Accessed 20 May 2017
  39. OECD (2014) Model tax convention on income and on capital 2014 (Full Version). http://www.oecd.org/tax/treaties/model-tax-convention-on-income-and-on-capital-2015-full-version-9789264239081-en.htm. Accessed 17 May 2017. doi:https://doi.org/10.1787/9789264239081-en
  40. OECD (2015) OECD/G20 base erosion and profit shifting project, explanatory statement. https://www.oecd.org/ctp/beps-explanatory-statement-2015.pdf. Accessed 10 Jul 2017
  41. OECD (2017) Transfer pricing guidelines for multinational enterprises and tax administrations. http://www.oecd.org/tax/transfer-pricing/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-20769717.htm. Accessed 11 Jul 2017
  42. Owens J (2005) Should the arm’s length principle retire? Int Transfer Pricing J 12(3):99–102Google Scholar
  43. PwC (2015) International transfer pricing 2015/16. https://www.pwc.com/gx/en/international-transfer-pricing/assets/itp-2015-2016-final.pdf. Accessed 10 May 2017
  44. Rojíček M (2012) Vliv globalizace na fungování mezinárodního obchodu. Politická Ekon 60(2):187–207CrossRefGoogle Scholar
  45. Solilová V, Nerudová D (2012) The effects of changes in transfer pricing policy of the business models in 21st century. In: New role of public finance 2012. Wolters Kluwer ČR, Praha, pp 247–257Google Scholar
  46. Solilová V, Nerudová D (2013) Transfer pricing: general model for tax planning. Ekonomický Časopis 61(6):597–617Google Scholar
  47. Solilova V, Steindl M (2013) Tax treaty policy on article 9 of the OECD model scrutinized. Bull Int Tax 67(3):128–136Google Scholar
  48. Swenson LD (2001) Tax reforms and evidence of transfer pricing. Nation Tax J 54(1):7–25CrossRefGoogle Scholar
  49. Taylor G, Richardson G, Lanis R (2015) Multinationality, tax havens, intangible assets, and transfer pricing aggressiveness: an empirical analysis. J Int Account Res 14(1):25–57CrossRefGoogle Scholar
  50. United Nations (1969) Vienna convention on the law of treaties. http://www.worldtradelaw.net/misc/viennaconvention.pdf. Accessed 21 Nov 2012
  51. United Nations (2011) United nations model double taxation convention between developed and developing countries. United Nations, New York. http://www.un.org/esa/ffd/documents/UN_Model_2011_Update.pdf. Accessed 17 May 2017
  52. Wells B, Lowell C (2014) Tax base erosion: reformation of Section 482’s arm’s length standard. Florida Tax Rev 15(10):737–797Google Scholar
  53. Wittendorf J (2010) Transfer pricing and the arm’s length principle in international tax law. Wolters Kluwer, Alphen aan den RijnGoogle Scholar

Copyright information

© Springer International Publishing AG 2018

Authors and Affiliations

  • Veronika Solilova
    • 1
  • Danuse Nerudova
    • 1
  1. 1.Mendel UniversityBrnoCzech Republic

Personalised recommendations