Transfer pricing – helping countries get their fair share

Correct transfer pricing can help developing countries fight tax avoidance and profit shifting by big transnational corporations, ensuring more funds to spend on public health and recovery from the shock of COVID-19. But what is transfer pricing?

It refers to an accounting practice where related companies, such as affiliates or subsidiaries, charge each other for goods or services rendered across borders. The relationship between the companies means that the companies can overcharge or undercharge each other in order to shift profits to territories with little or no taxation.

Sometimes, even unintentional mispricing by companies can impact the funds available for countries to finance education, health care or other Sustainable Development Goals. In times of a global pandemic and the worst economic crisis in 90 years, every dollar that countries can mobilize for their development makes a difference.

The United Nations is helping developing countries combat profit shifting and artificial transfer pricing arrangements to ensure that the profits are taxed in the country where the value was created.

The forthcoming third edition of the UN Practical Manual on Transfer Pricing for Developing Countries, developed by the UN Tax Committee through its multi-stakeholder Subcommittee, brings much needed guidance on what constitutes transfer mispricing and how to conduct a transfer pricing analysis. It also shares real-world developing country experiences.

While especially designed to assist policy makers and administrators in dealing with complex transfer pricing issues, the manual also assists taxpayers in dealing with tax administrations.

The manual is expected to be launched at the 22nd Session of the UN Tax Committee on 19-28 April 2021, complementing the Committee's other guidance materials on issues as diverse as taxation of the extractive industries, carbon taxation, dispute avoidance and resolution, and taxation of an increasingly digitalized economy.

In the run up to this critical meeting, UN DESA organized two tax webinars on:

• UN Webinar on the COVID-19 Impact on Transfer Pricing
• UN Webinar on Transfer Pricing Aspects of Financial Transactions

The webinars gave participants access to a renowned group of transfer pricing experts, bringing together different views from international organizations, government officials, civil society, the private sector and academia. If you have missed these, you can still catch them here.