Cross-Border Transfer Pricing

The Pillar Two GloBE Rules generally reflect standard transfer pricing principles by requiring transactions between entities located in different jurisdictions to be priced in accordance with the arms-lenth basis.

Article 3.2.3 of the OECD Model Rules applies an arms-length requirement for transactions between constituent entities in different jurisdictions. This should generally apply in any case due to transfer pricing policies under domestic tax laws.

Although these transactions may be eliminated in the consolidated financial accounts, given the Pillar Two GloBE income or loss is based on the entity’s financial accounts they would need to be considered.

If the financial accounts agree to an arms-length basis no adjustment would need to be made unless for tax purposes a different value is used to apply the arms-length basis.

Note that this only applies to the value of intra-group transactions, not the timing of intra-group transactions. Therefore, no adjustment is required to adjust the timing of an item in the financial accounts to the timing under domestic tax law.

The OECD transfer pricing guidelines apply to determine the arms-length basis. 

Importantly, decisions of domestic tax administrations are respected so that adjustments arising from a review by domestic tax administrations or as a result of a bilateral transfer pricing agreement cannot then be questioned by a company that is required to account for any top-up tax such as a UPE applying the income inclusion rule. 

Unilateral Transfer Pricing Adjustments