Governments establish tax rules for setting transfer prices for non-arm’s length transactions made by multinationals, following guidelines established by the OECD (1995) under Article 9 of the OECD Model Tax Convention. Various methodologies have been established; the first preference is determining comparable uncontrolled prices according to the arm’s length principle. Given the difficulties of achieving comparable transactions in determining price, margins or profitability, other methods, such as allocating profits among members of a corporate group according to a formula, have instead been relied upon for multi-jurisdictional corporate income taxation in some circumstances.
KeywordsArm’s length prices Capital intensity Comparable uncontrolled price Competent authority Cost-plus margin Double taxation Formulary apportionment Resale-minus margin Tax treaties Transactional net margin method Transfer pricing
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