Champagne, Cheese, and Transfer Pricing Policy

The United Nations’ (UN) motto— “Shaping our future together”—may need a tweak now that the global organization’s tax committee is working on reshaping international transfer pricing policies. This was a key takeaway from a meeting of the United Nations Committee of Experts on International Cooperation in Tax Matters that I attended in Geneva this fall. This will not be easy!

Cooperation Among the Countries

Since the session occurred, there have been few signs of international tax cooperation—in fact, quite the opposite has occurred. While many of the world’s most prosperous countries agree on the need for fundamental changes to the international corporate tax system, there are major disagreements on the nature of those changes. In early December, President Trump proposed enacting tariffs on a range of French imports (a response to France’s digital services tax) and U.S. Treasury Secretary Steven Mnuchin wrote a letter to the OECD expressing reservations about updating the international tax system to more effectively address digital services transactions. And tension is rising as more countries follow in France’s digital-taxation footsteps.

What's Influencing International Tax

There are many different dynamics influencing the international tax system right now, including digital transformation, contentious geopolitics, slowing economic growth, and long-standing policymaking efforts and updates. Given these factors, it is important to keep tabs on what the UN Tax Committee has in mind regarding transfer pricing, as well as how taxation influences—and is influenced by—the UN’s sustainable development goals, informal economy, environmental taxation, increasing digitalization of the economy, and more.

Regarding transfer pricing, it is important to keep in mind that most countries primarily adhere to one of two sets of guidelines, although in principle, countries observe both. For example:

1. Mature economies and developed nations look to the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which was last updated in 2017, just a couple of years after the unveiling of the outcomes of the OECD/G20 base erosion and profit shifting (BEPS) action plan.
2. Developing nations within the “least developed country” category tend to follow the United Nations Practical Manual on Transfer Pricing for Developing Countries, while still considering the principles contained in the BEPS Plan. Although the manual was refreshed in 2017, during this year’s 18th Session of the UN Committee of Experts on International Cooperation in Tax Matters, the subcommittee on transfer pricing proposed updates to this Manual.

Looking Towards the Future

This could change, however, if the UN Tax Committee updates its Practical Manual on Transfer Pricing Manual for Developing Countries, as anticipated. This update will focus on associated enterprises and financial transactions, as I detail in this MNE Tax article.

International policy-making efforts may not grab as many headlines as tariffs on champagne and cheese, but these endeavors often have longer-lasting impacts on the rules and rates that tax functions within global companies must comply with.