Transfer Pricing and Value Creation

1. S. 472Background and Purpose

The digital economy, through its rapid spread in the last decade, has had a significant impact on international taxation. With the rise of the digital economy, finding the right arm length’s transfer price for intangibles has become a burning platform. Even though transfer pricing poses a significant issue in a digitalized economy, the Organisation for Economic Co-operation and Development (OECD) has not yet extensively addressed this issue.

This paper will focus on highly digitalized companies. In addition to the overview and analysis of the environment, the paper will include a discussion on how a highly digitalized enterprise creates value, starting with the definition of the Value Creation and Digitalization. It continues by providing options on how a taxing right in a market jurisdiction with low or no physical presence can be established. Finally, it recommends a step-by-step process on how to perform a transfer pricing analysis by adapting the current taxing rules and recommending the most suitable transfer pricing method.

1.1. Current Situation

It is argued that technological, communication, and transportation developments make it easier for multinatio...