Transfer Pricing Rules and Arbitration Convention
Transfer pricing is one of the most important issues in international tax. Transfer pricing happens whenever two related companies – that is a parent company and a subsidiary, or two subsidiaries controlled by a common parent – trade with each other. It is estimated that about 60% to 70% of international trade happens across national boundaries within the same corporate group. In order to curb unjustified tax revenue loss transfer pricing has to comply with the "arm's length principle".
The course clarifies the notion of the arm's length principle, deals with the underlying legal framework, describes the various transfer pricing methods offered by the OECD Transfer Pricing Guidelines, sheds some light on the basics of the required comparability analysis and deals with primary and secondary profit adjustments in case of non-compliance with the arm's length principle. Finally, the application of the arm's length principle in intra-company dealings between head office and foreign permanent establishments of one and the same company is discussed as well.
The course illustrates the complexity of this specific area of international tax law and shows how easy cross-border tax conflicts may arise between tax administrations. Thus the importance of the European Arbitration Convention becomes apparent, which now ensures that multinationals doing business within the European market can entrust to get full protection against double taxation resulting from a diverging application of the arm's length principle in different countries.