Four of the most significant transnational organizations are working together to eliminate transfer pricing schemes and abuses.
The four organizations—the International Monetary Fund, the Organization for Economic Co-operation and Development, the United Nations and the World Bank Group—are seeking to achieve global cooperation in tax matters. Transfer pricing is one of their primary focus points. This collaborative mechanism is termed the “Platform for Collaboration on Tax.” The G20 pays an important role in endorsing OECD objectives. Nevertheless, the G20 lacks the organizational structure that would enable the other major transnational organizations to include the G20 as a member of this prestigious group. Additionally, regional transnational organizations participate in developing Platform issues.
These transnational groups created the Platform Concept Note in April 2016. Now the UN is seeking a wider transfer pricing role, following up on its 2013 transfer pricing foray, the United Nations Manual on Transfer Pricing for Developed Countries. The UN plans to update the transfer pricing manual later this year.
A principal UN goal is to better emphasize its broader objectives with other Platform members. The UN’s Committee of Experts on International Cooperation in Tax Matters held its 14th session last month, followed by the UN Economic and Social Council’s Special Meeting on International Cooperation in Tax Matters the next day.
How the Platform Views Transfer Pricing
The Platform defines transfer pricing as the process by which subsidiaries of multinational corporations assign value to transactions. Platform members view transfer pricing issues as critical in a globalized world. They have developed a draft toolkit postulating that low-income countries have difficulty accessing comparable transfer pricing data. The Platform addresses market-based data the tax authority can then ascertain. The goal is to view these amounts in contrast with the data reported by multinational corporations.
The toolkit offers advice to low-income tax administrations on making the best use of the data that does exist. The Platform suggests options that tax administrations could take in response to multinational corporations’ behavior where no pricing data is available.
The toolkit helps low-income countries’ tax administrations search for comparables. The Platform addresses comparability sources and the step-by-step screening process, including screening templates. The Platform recognizes there might be a systemic loss of comparables data and contemplates other policy options, including safe harbors.
The Platform views extractive industry transactions as being of great relevance to many low-income countries. It seeks to enhance the extractive expertise of their government tax authorities. The Platform members’ approach is to provide tax authorities with a step-by-step analytical approach for key minerals. The guidebook enables tax authorities to map the transformation chain for a particular mineral. The Platform expects tax administrations to identify traded products for a particular mineral and to establish common practices for the industry. At present, the Platform provides specific regimes for cooper, gold, thermal coal and iron ore. It may later provide similar analyses in other industries for the benefit of low-income countries.
The Toolkit Process
One of the earliest endeavors of the Platform was to develop a “toolkit” for developing countries, analogous to UN transfer pricing objectives. The broad goal of the toolkit was to enable developing countries to better understand transfer pricing ramifications in these jurisdictions. The Platform’s ultimate goal is to help countries better implement their G20/OECD BEPS (Base Erosion and Profit Shifting) responses. The Platform looked to its stakeholders to address six substantive and procedural issues:
1. How can a tax administration best ascertain the information it needs for a transfer pricing audit in a developing country? Then, how can the tax administration find the data it needs as part of this tax audit?
2. How can the tax administration maintain taxpayer confidentiality, at a country level and a regional level, when the tax administration receives this information?
3. How can the tax administration best rely on and test potential comparables and effectuated comparables from other geographic markets?
4. The Platform acknowledges that the taxing jurisdiction might not have data that reflects true comparables. What best practices or other approaches are available to the tax administration in such circumstances?
5. What adjustments should the tax administration make for geographic market differences? How can the stakeholders empirically test the reliability of the tax administration’s determinations?
6. Looking specifically to the mineral pricing case studies, do these studies accurately reflect market trading terms? What adjustments should the tax administration make when the enterprise sells its mineral products?
The Platform is growing in importance, affecting an increasing share of the transfer pricing regime. Stay tuned.