The UN Committee of Experts on International Cooperation in Tax Matters published a draft document to update the United Nations' Practical Manual on Transfer Pricing for Developing Countries. The draft includes a new chapter on financial transactions, revised text on profit splits, and revised text on establishing transfer pricing capability, risk assessment and transfer pricing audits.
The draft on financial transaction discusses the importance of corporate financing decisions within multinational groups and how those decisions could lead to tax base erosion. Therefore, the Chapter discusses the following topics to tackle this issue:
In addition the chapter also discusses different types of intra-group loans and it identifies four steps to determine the arm’s length nature of intra-group loans: (i) analyze economically relevant characteristics; (ii) accurately delineate the entire transaction undertaken as well as (iii) selection and (iv) application, of the most appropriate transfer pricing method. Furthermore, the chapter also provides the explanation on cash pooling practices and captive insurance, without getting into further detail on the delineation and arm’s length pricing of those specific transactions.
The text revision on profit split is primarily done to streamline the UN guidance with the work done in the context of the Inclusive Framework on BEPS, while providing more practical examples. The draft includes the existing text side-by-side with the proposed revisions for better understanding.
Moreover, the changes on establishing transfer pricing capability, risk assessment and transfer pricing audits aims to streamline the sequences of presentation and to eliminate overlaps in the current text.
Source: United Nations
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