14 Sep 2009

Arbitration to resolve Transfer Pricing issues: Latest from the EC

Artificially manipulating the prices/values underlying the inter-company transactions across various jurisdictions to reduce liability under tax laws of the different States has been a practice known to commercial world as 'Transfer Pricing'. The entanglement, therefore, which remains to be deciphered from the view-point of tax authorities is how to arrive at the price which seeming reflects the fair price i.e. 'arm's-length price'.

In fact there is no just one issue to this adjustment of transaction pricing. What is more onerous is to give effect to subsequent adjustments in the profits and booking of liability by change the prices adopted by the company. How to give these adjustments and in some cases why at all to give these adjustments, are issues which perturb the tax authorities. Finding answers to these and related issues is more uneven in the absence of a treaty between the countries relating to exchange of information, etc.

The European Community is, however, different. Struck under a bond of cohesiveness and also working under a mandate of joint-resolution of disputes, the countries across Europe has got this niche advantage of working in tandem on issues which really each country tries to work across its own. And it is on this joint exercise of resolution that the European Commission had brought out its latest report on resolution of Transfer Pricing Disputes through the route of its Arbitration Convention.

"Company taxation: The European Commission proposes a revised Code of Conduct for applying the Arbitration Convention to improve prevention of double taxation", runs the headline of the News Report. The Report carries interesting observations, intriguing enough to merit further consideration. Have a look at the full text of the Report.

Further, for a deeper analysis of the contours of 'Transfer Pricing', have a look at our earlier article covering the issue.

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