Establishing an arm's length price for transfer pricing purposes
Produced in partnership with Joel Cooper, Rachit Agarwal and James Dalley of DLA Piper
Establishing an arm's length price for transfer pricing purposes

The following Tax practice note produced in partnership with Joel Cooper, Rachit Agarwal and James Dalley of DLA Piper provides comprehensive and up to date legal information covering:

  • Establishing an arm's length price for transfer pricing purposes
  • Arm's length principle
  • Traditional transactional methods
  • Comparable uncontrolled price method
  • Resale price method
  • Cost plus method
  • Transactional profit methods
  • Profit split method
  • Transactional net margin method
  • Choice of method

Establishing an arm's length price for transfer pricing purposes

Arm's length principle

The arm’s length principle is endorsed by the OECD (Organisation for Economic Co-operation and Development) and enshrined in the Associated Enterprises Article (article 9) of the OECD Model Tax Convention. Further guidance on the arm’s length principle is provided in the OECD’s publication Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Transfer Pricing Guidelines) at Chapter I.

The UK's transfer pricing legislation must be interpreted as far as possible in line with the OECD Transfer Pricing Guidelines and Article 9 of the OECD Model Tax Convention. Since 1 April 2016, the amendments to the OECD Transfer Pricing Guidelines resulting from the OECD Base Erosion and Profit Shifting (BEPS) project also need to be taken into account. Most amendments were consolidated into the 2017 update to the OECD Transfer Pricing Guidelines, published in July 2017. In February 2020, however, the OECD published a report setting out transfer pricing guidance on financial transactions, which was developed as part of Actions 4, 8–10 of the BEPS Action Plan. The guidance contains a number of examples and, among other things, provides further clarity on the application of the arm’s length principle with respect to financial transactions. It is the first time the OECD has provided detailed guidance in this area. For more information, see the ‘Further reading

Popular documents