Strategizing Multinational Tax Risks

Click to access UN_Manual_TransferPricing.pdf

This link directs you to the final version of the U.N’s Practical Manual on Transfer Pricing for Developing Countries.  This version corrects minor technical errors in the 2012 version.  The separate country guidance is already attracting controversy since these countries are provided an official platform to express their views on location-specific advantages, etc. that compete with OECD guidelines.

In addition to this document, Alexander Trepelkov, Director of Financing for Development Office (FFDO), U.N. Department of Economic and Social Affairs has stated three primary initiatives of the FFDO.  The three initiatives will create tax training tools to:

1. Strengthen developing nations’ capacity to conduct transfer pricing analyses,
2. Negotiate, administer, and interpret tax treaties, and
3. Develop tax administration systems.

Transfer pricing analyses initiative:

• A meeting is being held this week to determine the scope and content of the project, focused on supporting tax administrators apply the arms-length principle to transactions between associated enterprises.

Tax treaty initiative: Training tools in development for tax administrators

• Fundamentals of tax treaties course, including similarities/differences between the U.N. models, is planned for early 2014
• Advanced tax treaty course to be developed jointly with the OECD, ensuring materials covering the U.N. model are included
• A joint project to create training tools on tax treaty administration with the German Federal Ministry for Economic Development and Cooperation.

Develop tax administration systems initiative:

• A joint project with the Inter-American Center of Tax Administrations to develop an empirical method to measure and assess tax administration cost.  Pilot programs are taking place in Costa Rica and Uruguay.

These developments should be closely followed, especially in developing countries that are developing transfer pricing expertise and non-OECD countries that have publicly stated their views in the U.N.’s Practical Manual on Transfer Pricing for Developing Countries.  This insight is also valuable information to review in a pre-audit strategy for such countries, having advance knowledge of their stated positions and differences with OECD methodology.