Thought leadership from our experts

Global trends in transfer pricing

Numerous, interrelated global trends in the transfer pricing landscape have emerged, including growth of the digital economy, challenges to the arm's length standard, increasing tax authority and taxpayer use of big data and discussions on the compensable value of data, and the increasingly favored profit split method. This article focuses on the following trends:

1. Globally converging corporate income tax ("CIT") rates and rules to diminish tax base erosion;

2. Intensifying focus on intangibles in transfer pricing-related legislation/rules and by tax authorities;

3. Increasing compliance and risk management burdens; and

4. Growing efforts by multinational enterprises ("MNEs") to improve their global transfer pricing processes using technology.

Converging CIT Rates and Rules

Globally converging CIT rates and rules to diminish tax base erosion are evidenced by changes to the CIT rate under the United States Tax Cuts and Jobs Act of 2017 ("TCJA"). In addition to a more competitive CIT rate, the TCJA has adopted provisions that resemble other countries' dual-rate innovation box regimes (e.g., the UK has a regular CIT rate of 19 percent and a 10 percent rate on patent boxes). Since the TCJA, additional OECD countries have competitively lowered CIT rates – and strengthened anti-BEPS1 tax rule structures – in line with the new global norms.

Globally, tax competition among countries continues, with the majority of OECD countries now having CIT rates in the range of 19 to 25 percent. After the TCJA, Belgium, Luxembourg, Japan and Norway all reduced their CIT rates. The convergence of global tax rates is increasing the focus on transfer pricing risk management – to mitigate the risks of controversy, double taxation and penalties – and decreasing the focus on tax rate arbitrage-based transfer pricing planning.

Intensifying Focus on Intangibles

The passage of the TCJA resulted in a new sentence added to IRC § 482 that requires aggregation of intangible property ("IP") transactions when aggregation is the most reliable means of valuation, and contains an expanded definition of IP under IRC § 936(h)(3)(B) for purposes of Treasury Regulations §§ 1.482 and 1.367(d). The revised definition of IP is now found in IRC § 367(d)(4), due to the Consolidated Appropriations Act, 2018, under U.S. Public Law ("PL") 115-141, which both repealed IRC § 936 and added subparagraph (d)(4) to IRC § 367, effective 23 March 2018.

Motivated by recurring controversies involving transfers of IP for purposes of Treasury Regulations §§ 1.482 and 1.367(d), both of which used the statutory definition of IP in IRC § 936(h)(3)(B), Congress utilized the TCJA (PL 115-97) to add a new, third sentence to IRC § 482. This sentence reads, "For purposes of this section, the Secretary shall require the valuation of transfers of intangible property (including intangible property transferred with other property or services) on an aggregate basis or the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers." PL 115-97 also added the new IRC § 482 content to IRC § 367(d)(2) as the new subparagraph (D).

IRS efforts to aggregate IP transactions for transfer pricing purposes have been repeatedly addressed by the U.S. Tax Court (e.g., Amazon.com, Inc. v. Commissioner, 148 T.C. No. 8 (2017)). In these cases, the Tax Court has held that aggregation of transactions is appropriate if an aggregated approach produces the most reliable means of determining the arm's length consideration for the controlled transactions.

The 2017 edition of the OECD Transfer Pricing Guidelines ("OECD Guidelines") state, (Chapter III: Comparability Analysis, paragraph 3.9) "[T]here are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis. Examples may include: … b) rights to use intangible property … when it is impractical to determine pricing for each individual product or transaction." Also, Chapter VI: Intangibles (paragraph 6.12) discusses the importance of: identifying relevant intangibles with specificity, the functional analysis and DEMPE2 functions, the manner in which intangibles under analysis interact with other intangibles, and the appropriateness of aggregating intangibles for the purpose of determining arm's length conditions for the use or transfer of intangibles in certain cases.

The TCJA also resulted in an expansion of the IRC IP definition, bringing the U.S. statutory definition of IP for transfer pricing closer to the OECD Guidelines' definition of intangibles. In addition to the IP specified in IRC § 367(d)(4)(A – E), goodwill, going concern value, and workforce in place (including its composition and terms and conditions of employment) are now defined as IP within the meaning of IRC § 367(d)(4)(F), as is the residual category of "other item the value or potential value of which is not attributable to tangible property or the services of any individual." However, it is not the case that all aspects of the accounting value of goodwill, going concern value, and workforce in place are necessarily compensable.

Chapter VI (paragraph 6.13) of the OECD Guidelines also treats goodwill and ongoing concern as intangibles. The OECD's general definition of intangibles is widely-encompassing and does not necessarily preclude "workforce in place" as an intangible, stating in paragraph 6.6, "In these Guidelines, therefore, the word 'intangible' is intended to address something which is not a physical asset or a financial asset, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances."

Increasing Compliance and Risk Management Burdens

A considerably increased transfer pricing compliance burden (i.e., master file, local files and country-by-country ("CbC") reports) for MNEs under BEPS Action 13 has increased the transparency of MNE international tax structures. The increased transparency requires MNEs to carefully consider the appropriate location of high-value activities, intangible property, and intercompany financing. Also, tax authorities now have more information about taxpayers than ever before due to countries (77 countries as of 24 January 2019)3 signing the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports ("MCAA") and similar bilateral agreements for the automatic exchange of information ("AEOI"). For example, the U.S. has bilateral agreements with 44 countries.4 Expectations are for increased controversy as tax authorities utilize large amounts of taxpayer AEOI data. MNEs face the risk that tax authorities will misuse information taken out of context to justify aggressive adjustments to taxable income.

In addition to existing AEOI, the European Union's fifth amendment to its 2011 Council Directive on Administrative Cooperation in the Field of Taxation,5 "Council Directive (EU) 2018/822 of 25 May 2018"6 (the "Directive") introduces a new mandatory reporting regime in respect of certain "reportable cross-border arrangements". The Directive is intended to increase transparency to tackle what the EU sees as aggressive cross-border tax planning. It requires intermediaries, such as an MNE's tax advisors and lawyers, to report cross-border arrangements that are considered by the EU to be potentially aggressive. Cross-border reportable arrangements where the implementation started on or after 25 June 2018 will need to be reported by 31 August 2020. A few examples of reportable cross-border arrangements include: fees contingent on tax advantages derived, "standardised" (e.g., boilerplate or generic) documentation and structures, the acquisition of a loss-making company to reduce tax liability, and transfers of hard-to-value intangibles (when a main benefit of the arrangement is to obtain a tax advantage). Under the Directive, reported information about the arrangements will be automatically exchanged between EU Member States. As such, it is more important than ever for MNEs operating in the EU to ensure careful and thorough documentation of the underlying business cases for reportable arrangements.

Global Transfer Pricing Management Technology Solutions

Many MNEs are having difficulty developing streamlined, well-organized transfer pricing processes. Companies are looking for cost-effective approaches to achieve compliance and address transfer pricing risks such as one-sided adjustments, which potentially result in double taxation and non-deductible penalties. At the same time, MNEs must balance global consistency with specific country compliance requirements.

Transfer pricing technology solutions have evolved in form, content and usability. Early offerings were CD-ROM databases of company information with minimal user interfaces, which were not necessarily designed for transfer pricing practitioners. The next technological step brought software applications that integrated company databases with user interfaces designed for research, analysis and report generation. Today, there are more than a dozen transfer pricing technology offerings, including SaaS platforms and applications.

Many transfer pricing technology solutions are designed to enable MNEs to create transfer pricing documentation in-house. These offerings have often fallen short due to software application rigidity and the inability to address many transfer pricing nuances that are specific to individual MNEs. Moreover, tax authorities become skeptical when they see reports with generic, boilerplate language – concluding in such cases that the MNE has demonstrated a lack of care.

While certain software products focus on limited aspects of transfer pricing, such as the analysis of financial transactions or the automation of CbC reporting, MNEs need a technology solution for the common operational challenges faced by their in-house global transfer pricing teams, including:

  • Limited resources and time to complete large numbers of local files
  • Inefficiencies with gathering and sharing information across departments and entities
  • Difficulties organizing and tracking the status of projects
  • Lack of an effective process to measure risk and prioritize transactions and reports
  • Monitoring and adjusting transfer prices during the fiscal year to achieve target levels of profitability in accordance with transfer pricing policies
  • Tracking the location of global IP owners and mapping them to the associated functions (i.e., DEMPE functions)
  • Maintaining a state of readiness for transfer pricing audits in various countries

In response to these challenges, WTP Advisors has introduced Trans-Portal, which is a global transfer pricing management platform. Trans-Portal is designed to address the above "pain points" and provide a comprehensive solution to organize global documentation, automate data collection with collaborative templates and ERP integration, analyze risks, efficiently update master and local files, collaborate with colleagues, and validate results and documentation.


  1. BEPS: Base Erosion and Profit Shifting
  2. DEMPE: Development, Enhancement, Maintenance, Protection, Exploitation
  3. Signatories Of The Multilateral Competent Authority Agreement on the Exchange of Country-By-Country Reports (CbC MCAA) and Signing Dates". OECD.Org, 2019, https://www.oecd.org/tax/beps/CbC-MCAA-Signatories.pdf. Accessed 7 June 2019.
  4. Country-By-Country Reporting Jurisdiction Status Table". IRS.Gov, 2019, https://www.irs.gov/businesses/country-by-country-reporting-jurisdiction-status-table. Accessed 7 June 2019.
  5. Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC.
  6. Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.