Transfer Pricing and Value Creation

1. S. 152Introduction

Transfer pricing is one of the most debated topics in the contemporary tax environment. The objective of transfer pricing is to correctly valuate transactions between connected entities that are members of one business group, often a multi-national enterprise The main aim of this thesis is to introduce and explore the concepts of the traditional transaction methods that are used in the application of the so-called “arm’s length principle” on economic transactions between associate enterprises.

In the opening chapter, the thesis will go through the methods approved by the arm’s length principle. It will introduce each method in a general setting. Furthermore, it will introduce the process of choosing the appropriate method at hand depending on the controlled transaction’s circumstances, the functional analysis of the transaction, and available information on uncontrolled comparable transactions.

In Chapters 3–5, the thesis then focuses on each of the three traditional transaction methods separately and describes their inner workings. It will take a look at their benefits and weak points, concentrate on possible remedies, and explore types of controlled transactions betw...