Tag Archives: OECD

OECD Transfer Pricing Guidelines for Multinational Enterprises & Tax Administrations

The origin of the OECD dated to 1960’s, where 18 countries joined their forces together in creating an organisation that is dedicated to the economic development.  Presently, the members of the OECD spanning across the global have worked closely to build a stronger foundation.

The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations were published in July, 2010. The guidelines provides detailed guidance on transfer pricing, application of the arm’s length principle, transfer pricing methods, comparability analysis, transfer pricing documentation and more.

The OECD Guidelines are considered to be an international soft law for the OECD members. The guidelines were published to bring all of the OECD members together to achieve one collective goal. Each of the OECD member may choose to incorporate the guidelines into its national law.

The following is an overview of the OECD Guidelines table of contents:

Chapter 1: The Arm’s Length Principle

Chapter 2: Transfer Pricing Methods

Chapter 3: Comparability Analysis

Chapter 4: Administrative Approaches to Avoiding and Resolving Transfer Pricing Disputes

Chapter 5: Documentation

Chapter 6: Special Consideration for Intangible Property

Chapter 7: Special Consideration for Intra-Group Services

Chapter 8: Cost Contribution Arrangements

Chapter 9: Transfer Pricing Aspects of Business Restructurings

Seven List of Annexes

Appendix: Recommendation of the Council on the determination of transfer pricing between associated enterprises

On 14th of December 1960, approximately 20 countries originally signed the Convention on the Organisation for Economic Co-operation and Development. Since then, 15 more countries have become members of the Organisation.

The list of the current members countries of the Organisation and dates on which they deposited their instruments of ratification.




7 June 1971


29 September 1961

13 September 1961


10 April 1961


7 May 2010

Czech Republic

21 December 1995


30 May 1961


9 December 2010


28 January 1969


7 August 1961


27 September 1961


27 September 1961


7 May 1996


5 June 1961


17 August 1961


7 September 2010


29 March 1962


28 April 1964


12 December 1996


1 July 2016


7 December 1961


18 May 1994


13 November 1961

New Zealand

29 May 1973


4 July 1961


22 November 1996


4 August 1961

Slovak Republic

14 December 2000


21 July 2010


3 August 1961


28 September 1961


28 September 1961


2 August 1961

United Kingdom

2 May 1961

United States

12 April 1961


What is Transfer Pricing?

Transfer Pricing is more commonly defined as the transaction between related parties (i.e. another member of the same organisation) for the acquisition of goods, services or intangible properties. The transfer pricing allocated profits between the same members of the organisation.

From a taxation perspective, transfer pricing is extremely important and relevant. Transfer pricing could potentially lead to a distortion of profits allocated between the related parties, whereby it consequently could result companies not remitting their fair share of taxes in one or more tax jurisdiction. Thus, enjoying the tax advantage.

The arm’s length principle is a leading principle that explores and pursues to eliminate the factors that would affect the transfer price between two related parties. The concept of the arm’s length principle was defined by the Article 9 of the OECD Model Tax Convention. The Article 9(1) provides:

“[Where] conditions are made or imposed between the two [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.”

The rationale of arm’s length principle is where most transactions, prices and conditions applied by the related parties should be determined by the market forces, regardless of the transactions occurred. This similar applies to the conditions of inter-company transactions as well (i.e. terms and conditions of the payments, delivery, etc.)