Transfer Pricing: Platform for Collaboration on Tax develops toolkit to help countries

The Platform for Collaboration on Tax (PCT) has developed a draft toolkit designed to assist developing countries in an important area of international tax policy –transfer pricing.

Transfer pricing – the value assigned to transactions between subsidiaries of multinational corporations – is an increasingly critical issue in a globalised world.

The Platform – a joint initiative of the International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), United Nation (UN) and World Bank Group –is in responds to a request by the Development Working Group of the G20.

Created in 2016 due to the growing demand for enhanced co-ordination on tax issues, Platform for Collaboration on Tax formalises regular discussions between the four international organisations on the design and implementation of standards for international tax matters.

The toolkit is part of a series of reports by the Platform for Collaboration on Tax designed to help countries that may have limitations in their capacity to design or administer strong tax systems.

The draft toolkit (A Toolkit for Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses) examines how tax administrations can evaluate the correctness of the transfer prices set by multinationals when there is insufficient information available to governments on market-based transactions that are comparable to those reported by the multinational corporation (“comparables”).

Previous reports have included discussions of tax incentives and external support for building tax capacity in developing countries.

Helping developing countries build strong and credible transfer pricing regimes is an important part of the Platform’s effort to increase the capacity of developing countries to apply the principles of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.

Robust transfer pricing rules are critical for governments to ensure profits, and the associated revenues, are not artificially shifted out of the jurisdiction where the value has been created.

For taxpayers, an effective and consistent approach to transfer pricing can limit the exposure to economic double taxation or risks of cross-border tax disputes arising between two countries in which they do business.

OECD/G20 Base Erosion and Profit Shifting (BEPS) Project is an initiative that assists countries in protecting their tax bases from aggressive or inappropriate tax planning by multinational corporations.

The OECD has driven the global fight against tax evasion through enhanced tax transparency for more than two decades. Its multi-prong approach is based on developing strong tax transparency standards, promoting global buy-in to ensure a level playing field, providing support to countries on implementation and monitoring progress to ensure commitments are maintained.

The role of effective tax systems as a crucial element of domestic resource mobilisation (DRM) is receiving growing recognition by the G20 as well as in discussions on development financing as part of the global commitment to the post-2015 Sustainable Development Goals (SDGs).

“Tax is at the heart of our societies. A well-functioning tax system is the foundation stone of the citizen-state relationship, establishing powerful links based on accountability and responsibility”, said Angel Gurría, OECD Secretary-General.

The Platform now seeks public feedback on that toolkit, which specifically addresses the ways developing countries can overcome a lack of data on “comparables,” or the market prices for goods and services transferred between members of multinational corporations.

One of the key priorities of the Platform is to ensure a coherent approach to the technical advice provided in working with developing countries, particularly as those countries seek to enhance DRM and have greater influence in the design of the international tax rules.

The toolkit offers advice on making the best use of data that exists and options for monitoring the behaviour of multinational corporations in situations in which no data is available.

Iheanyi Nwachukwu