Transfer Pricing and Value Creation

1. S. 174Introduction

The current system of international taxation is undergoing fundamental changes that it has not seen for decades. Part of this process is the reassessment of existing transfer pricing rules to make them more aligned with actual MNEs’ value creation realities.

For the application of transfer pricing methods, staying at the heart of the methodology based on arm’s length principle (ALP) is an important part of these changes.

The aim of this thesis is to look closer at the role that transactional profits methods (TNMM and PSM) are playing in the current transfer pricing system and try to answer how it may change in the future. The starting point for such an analysis is to look at how transfer pricing methods evolved over time, what place in the hierarchy of transfer pricing methods do they now take, and what are the reasons for this. A significant part of the analysis will be dedicated to understanding how both methods work, what are their strong and weak sides, and in what circumstances they are applied to provide the best results.

While analyzing the profit split method, it would not be possible to avoid the debate between supporters and opponents of the arm’s length princ...