New Transfer Pricing Analysis Practice Guide published by the UN

At the end of April, the UN published the third edition of the Transfer Pricing Practice Guide. The guide is intended to help tax administrations implement transfer pricing rules and apply them in tax audits. However, it can also be helpful for German taxpayers in carrying out transfer pricing analysis.

Introduction and classification

On 27 April 2021, the UN published what is now the third edition of the Guide to Transfer Pricing Issues. The main focus is on the application of the arm’s length principle and the implementation of a legal framework, including administrative machinery, for transfer pricing audits in developing countries. The focus is on transactions that are particularly relevant for developing countries. The UN Manual explicitly refers to the OECD papers. In many places, the UN is much more concrete and practical than the OECD. Consequently, it should also provide German tax auditors with an interpretation aid for the implementation of the arm’s length principle.

The UN Manual is intended to help policymakers and tax administrations in developing countries deal with complex transfer pricing issues in order to avoid double taxation and resolve disputes. Content of previous editions related to profit sharing, financial transactions, comparability issues and centralised purchasing functions has been updated. The following topics have been added, among others: intra-group services, cost allocation agreements and intangible assets. The appendices provide details for the analysis in six countries: Brazil, China, India, Mexico, South Africa and Kenya.

Comparability issues

The UN Manual identifies comparability analysis as a core element of transfer pricing analysis. It explains comparability problems in developing countries and gives practical examples of how to solve them.

Good comparables are often lacking. In these cases, the guide encourages economic reflection. If sufficient comparables cannot be found, the analysis should focus on the most economically significant features of the controlled transaction and dispense with other, less critical screening criteria.

Where this is the case, secondary screening may be particularly useful to refine the set of potential comparables. The UN Manual also recommends the use of the so-called toolkit “Addressing a Lack of Access to Comparables for Transfer Pricing Analyses” as a practical aid from the World Bank, IMF, OECD and UN.


The UN Manual emphasises the high relevance of intangibles. The definition of intangibles is based on the OECD and the DEMPE concept has been included, but in the form of the DAEMPE concept. The “A” stands for acquisition. The UN thus emphasises the high importance of company acquisitions for the extraction of intangible assets. According to this, intangible assets are to be seen after an acquisition where the decision to purchase was made. The guideline follows the OECD guidelines with regard to further aspects: Values from purchase price allocations (PPAs) can serve as the starting point for a valuation. However, possible deviations must be taken into account and adjustments made accordingly. Market conditions and group synergies are not seen as intangible assets. Employee transfers do not lead to the transfer of intangibles according to the UN. This picture can change, however, if intangible assets such as drawings or algorithms are taken along with the secondment.

Purchasing functions

The UN guidelines emphasise different remuneration for purchasing functions. The UN primarily considers a cost-based and a volume-based approach. In the cost-based approach, remuneration is based on the costs associated with the purchasing function. The volume-based approach claims a remuneration depending on the purchasing volume. This would then correspond to a return on sales. If available and comparable, a purchasing commission determined via the price comparison method would be conceivable as remuneration. In special cases, a profit split is also appropriate, especially if special technology is used for purchasing.

Financial transactions

A new chapter has been added on financial transactions. The starting point of the analysis should be the question of whether a third party would have taken out a loan under comparable circumstances. The interest rate should then be determined. Realistic alternative options should be weighed up for both borrower and lender. In doing so, the functions and risks, the economic circumstances and business strategies should be taken into account. The explanations are clearly more detailed and backed up with more examples than the OECD explanations. One example is the reference to the S&P method for determining the rating. The UN Manual states that negative group backing is also conceivable. Country risks are also to be included.

There is no mention of hedging, cash pools and captives. The UN initially calls for the application of the most appropriate method. However, it has a strong preference for external or internal price comparison. Profit splits are only to be applied for cash pools. Treasury functions are not necessarily to be remunerated as routine functions, depending on the risks borne.

Due to the many examples, the section on financial transactions should be highly relevant for practice.




UN, United Nations Practical Manual on Transfer Pricing for Developing countries 2021 – April 2021, Third Edition, UN, New York

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