Transfer Pricing and Value Creation

1. S. 132Introduction

The first steps of the transfer pricing analysis shall set out the factual substance of the commercial or financial relations (the “real deal”) between the parties of the transaction and accurately delineate the actual transaction that has been undertaken.

In order for the accurate delineation of the actual transaction, the parties must identify the substance of the commercial or financial relations by analyzing the economically relevant characteristics. In order for an accurate pricing of the transaction, the parties must further recognize the actual transaction that has been undertaken. This article deals with the recognition of actual transactions. Furthermore, it deals with the tools that are available to the tax administrations and taxpayers to determine pricing for the actual transaction as it is accurately delineated.

2. Actual transaction undertaken except for exceptional circumstances

Art. 9 (1) of the OECD Model deals with adjustments to profits between associated enterprises when transactions have not been entered on arm’s length terms. The main purpose of Art. 9 (1) OECD Model is to establish limits to the taxing rights of each country. An incidental effect ...