UN updates transfer pricing manual for developing countries

By Doug Connolly, MNE Tax

The United Nations’ latest edition of its practical manual on transfer pricing for developing countries, released April 27, adds new content on financial transactions, centralized procurement functions, and country practices.

The 2021 edition of the manual, which replaces the second edition published in 2017, also updates guidance on profit splits and comparability issues and makes other revisions and organizational changes throughout.

The 600-plus page manual is intended to help policymakers and tax administrations in developing countries tackle complex transfer pricing issues to avoid double taxation and resolve disputes. The manual is drafted by a UN subcommittee whose members include various government tax and policy officials, as well as representatives of the private sector, academia, and non-governmental organizations.

The new edition introduces a new organizational numbering system for paragraphs, but it still follows the four-part, lettered layout of previous editions.

Part A provides an overview of multinational enterprises, their operation and structure, and the management of their transfer pricing function.

Part B addresses the arm’s length principle, comparability analyses, transfer pricing methods, and policy considerations for certain types of arrangements and transactions.

The new content on intragroup financial transactions is included under Part B in chapter 9. The new chapter includes information on common types of intragroup financial transactions, how country tax policies affect multinational enterprise financing decisions, and the application of the arm’s length principle to intragroup loans.

Part B also features new content on centralized procurement functions in sections 5.6 through 5.13. The guidance explains that most multinationals operate some form of centralized procurement function, but that the underlying activities and their economic substance can vary widely. The guidance is intended to help developing countries identify features of substantive arrangements versus those lacking economic substance.

Part C focuses on designing transfer pricing legislation and implementing regulations, documentation requirements, assessing risk, conducting audits, and dispute resolution.

Part D looks at country practices in selected developing countries. As in the 2017 edition, the 2021 edition includes sections on the leading emerging markets of Brazil, China, India, Mexico, and South Africa. The 2021 edition also adds a new country practices profile for Kenya.

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Doug Connolly

Editor-in-Chief at MNE Tax

Doug Connolly is Editor-in-Chief of MNE Tax. He has more than 10 years of experience covering tax legal developments, previously working with both a Big Four firm and a leading legal publisher. He holds a law degree from American University Washington College of Law.

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