Law & Numbers - Transfer pricing

A transfer price is the price at which goods or services are sold between companies belonging to the same multinational enterprise (MNE). When transfer prices don’t reflect the real market forces, the tax liabilities of related companies and the tax revenues of the host countries could both suffer important distortions.

More than 60% of today’s world trade takes place between two units of the same multinational enterprise (MNE). This is why most of the companies are today in the scope of transfer pricing rules.

This is why all jurisdictions develop sophisticated Transfer Pricing Rules requiring that the prices used by MNE between its subsidiaries located in different jurisdictions comply with the arm’s length principle.

According to the arm’s length principle transfer prices should be adjusted so as to be comparable to the prices that would be applied if the parties were unrelated, in similar transactions, and under similar circumstances.

A number of methods have been put into place and coexist, to determine arm’s length prices. For the moment, there is no prevailing method, and determining a comparison reference that will not be easily challenged by tax authorities is a highly important matter.

EU based companies are more and more frequently relying on the EU CODE OF CONDUCT on transfer pricing which provides that Multinational Enterprises "MNE" must make available to tax administrations a "Master file" containing a "blue print" of the company and its transfer pricing policy. The Master file is common to all EU Member States concerned and written in a commonly understood language for the EU Members States at stake. In addition, MNE must prepare a "country specific documentation" for each specific EU Member States involved in intra-group transactions. This document must be written in a language prescribed by the EU Member State concerned.

Transfer pricing is quickly becoming a complex and expensive issue, requiring extensive knowledge of various national tax laws, and a strong understanding of the positions of tax authorities throughout the world. Moreover, with the ever increasing level of international transactions tax authorities are showing a much bigger interest in transfer pricing than ever before, and audits are on the rise.

The implementation of an efficient Transfer Pricing policy is a four steps process:

1. List the products/services in the scope of transfer pricing rules
2. Select the products/services for which a transfer pricing policy is critical
3. Perform a transfer pricing analysis for the selected products/services
4. Prepare the appropriate transfer pricing documentation
5. Up-date regularly the existing analysis and documentation

Law & Numbers is an international business and tax law network that is designed specifically
to assist you in all your cross-border issues. We believe that it is the pragmatic blending of tax and financial aspects of a question that creates business oriented solutions adapted specifically to your particular needs.

All our partners have extensive experience in the transfer pricing domain and can offer you quick and efficient international solutions allowing you to meet your legal requirements while delivering maximum tax efficiency.


For any questions concerning transfer pricing issues please contact :
Vincent Grandil (France)
Björn Christian Gerow (Germany)



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