What are the pros and cons of unilateral measures for transfer pricing?
Transfer pricing is the practice of setting the prices of goods and services exchanged between related entities within a multinational group. It affects how much income tax these entities pay in different jurisdictions and how much profit they report to their shareholders. However, transfer pricing is not always aligned with the economic reality of the transactions or the value creation of the group. This can lead to disputes between tax authorities and taxpayers, as well as potential double taxation or double non-taxation.
To resolve these disputes, there are two main approaches: the mutual agreement procedure (MAP) and the unilateral measures. The MAP is a process that allows tax authorities of different countries to negotiate a solution based on the relevant tax treaties and the arm's length principle. The unilateral measures are actions taken by one country without the consent or involvement of the other, such as imposing adjustments, penalties, or anti-avoidance rules. In this article, we will explore the pros and cons of unilateral measures for transfer pricing.