Transfer Pricing and Value Creation

1. S. 296Introduction

Services comprise about two-thirds of GDP in most-developed countries and its share has been constantly growing in recent years. The main reasons behind this growth are the outsourcing of service activities from manufacturing firms, growing importance of connecting services such as telecommunications and transport in the global value chains, and a growing services component in sophisticated manufacturing goods such as software in cars. There is also an increase in the prices of service tasks relative to manufacturing tasks as manufacturing tasks are easier to offshore to lower cost locations than service tasks. Such reshaping of the global economy is going hand in hand with the introduction of new technologies and operating models of value chains which increases the significance of capturing the services from the transfer pricing perspective even more.

It is necessary to find a proper solution for the allocation of profits arising from the provision of services among participating countries especially within the context of global value chains in which services activities are undertaken by entities from different countries all over the world. Following the transfer pri...