Transactional Adjustments in Transfer Pricing

Type Book

Author(s)

Aitor Navarro

Series

IBFD Doctoral Series

Date of publication

January 2018

DOI https://doi.org/10.59403/37fkn3b

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Transactional adjustments in transfer pricing

This book examines whether, and to what extent, transactional adjustments may be applied within transfer pricing.

Winner of the 2019 Frans Vanistendael Award for International Tax Law.

Why this book?

This book examines whether, and to what extent, transactional adjustments may be applied within transfer pricing, i.e. whether it is possible to alter conditions and circumstances (other than prices or margins) of transactions conducted between related parties.

In the context of the comparability analysis demanded by transfer pricing rules, the conditions and circumstances of controlled transactions normally serve to define the magnitude of its identity with an uncontrolled comparable reference, to determine if primary adjustments on profits need to be implemented. Nevertheless, it is relevant to question whether these very factors could also be subject to adjustments, since altering the features of controlled transactions, such as the attribution of risks, the reallocation of intangible assets or even the entire disregarding of a loan transaction, will undoubtedly have an impact on the profits of the assessed entity.

In this book, it is shown that transactional adjustments are not only possible but also inherent to the arm’s length principle. However, a clear and precise delineation of stringent boundaries, both in the scope and the manner in which adjustments are to be applied, is essential to mitigate undue discretion. Through the examination of such limits, defined in accordance with the arm’s length principle, a model on the enforcement of transactional adjustments is proposed. This model is of interest not only for determining the proper implementation of the referred adjustments, but also to duly assess the appropriateness of their treatment in different frameworks, ranging from parameters defined in the Transfer Pricing Guidelines and BEPS Actions referring to transfer pricing, to domestic transfer pricing rules and court decisions.

Furthermore, the impact of transactional adjustments on specific scenarios that practitioners, tax administrations and courts have to face regularly within the realm of transfer pricing is thoroughly examined – namely, on the distribution of risks, the attribution of profits generated by intangible assets, the assessment of hard-to-value intangibles, business restructurings and cost sharing agreements.

Downloads

Sample excerpt, including table of contents

Review

Reviewed by Jérôme Monsenego Associate Professor of International Tax Law, Stockholm University.

"The book 'Transactional Adjustments in Transfer Pricing' brings a welcome contribution to the analysis of a controversial and yet little explored topic, which has both theoretical and practical relevance, and will be useful for policymakers and academics as well as tax administrations, taxpayers, and judges. The book results in a plea for an approach whereby the adjustments to intercompany transactions are mainly limited to adjustments in the comparability analysis consistently with the facts of a case, as opposed to adjusting the conditions of a transaction or to even disregard it. Finally, it can be mentioned that this book incidentally contributes to the discussion on the suitability of the arm’s length principle as a method to allocate the cross-border income of multinational enterprises."

This book is part of the IBFD Doctoral Series

View other titles in the series

Author(s)

Aitor Navarro is a senior tax scholar at Carlos III University in Madrid, Spain, where he obtained his PhD. He specializes in transfer pricing, corporate taxation and international taxation.