Transfer Pricing

Transfer Pricing

Transfer pricing is the general term for the pricing of transactions between related or associated enterprises. It should reflect the internationally accepted arm’s length principle embodied in Article 9 of the UN Model Double Taxation Convention between Developed and Developing Countries. It is particularly relevant to the global transactions of multinational enterprises, involving the transfer of goods, services and intangibles between enterprises of the multinational groups.

When transactions between associated enterprises do not reflect the arm’s length principle, profits might be shifted to low-tax or no-tax jurisdictions and losses and deductions shifted to high-tax jurisdictions. This can deprive a country of tax revenue. When two or more tax authorities take different positions in determining the arm’s length price, double taxation may occur. Unrelieved double taxation in transfer pricing cases can represent a significant economic burden for taxpayers, which can in turn negatively impact the investment climate of countries.

The effective application of transfer pricing rules is key to protecting the tax base of developing countries and their capacity to mobilize domestic resources to increase investment in the SDGs. It also contributes to combatting illicit financial flows. Well designed transfer pricing rules help eliminate double taxation, thus facilitating cross-border trade, creating a favourable investment climate and assisting developing countries to increase their tax revenues.  

Transfer pricing is not an exact science. It heavily depends on assessing the facts and circumstances of each case, performing a comparability analysis and interpreting available data. 

The UN Practical Manual on Transfer Pricing

The UN Practical Manual on Transfer Pricing for Developing Countries provides guidance on the policy and administrative aspects of undertaking a transfer pricing analysis. The guidance assists policy makers and administrators in dealing with complex transfer pricing issues, and it assists taxpayers in dealing with tax administrations.

The UN Manual is a signature product of the UN Committee of Experts on International Cooperation in Tax Matters. In its third edition, which will be published in 2021, the UN Manual improves existing guidance and introduces new elements in response to some of the cutting-edge issues in transfer pricing. The Manual is focused on transfer pricing in a global environment, while it provides guidance on design principles and policy considerations. It also addresses the practical implementation of a transfer pricing regime in developing countries and shares examples of country practices from developing countries, such as Brazil, China, India, Kenya, Mexico and South Africa.

The 2021 UN Manual brings a new chapter on financial transactions and additional guidance on group synergies and centralized procurement functions. It also includes revised guidance on profit splits and on how to establish transfer pricing capabilities within tax administrations.

UN DESA capacity development

UN DESA provides capacity development in the area of transfer pricing, with a focus on strengthening developing countries’ capacities to apply the arm’s length principle, among other practical issues.

The UN Online Primer in Transfer Pricing is a capacity building tool based on the UN Practical Manual. It allows for a better understanding of transfer pricing challenges and for conducting transfer pricing analysis.

Specific transfer pricing issues of relevance for developing countries are addressed through global and regional workshops organized by UN DESA and its partners in international tax cooperation.


UN Practical Manual on Transfer Pricing for Developing Countries (2021) (2017) (2013)

UN DESA capacity development workshops