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.
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.
Transactions between entities located in the same jurisdiction do not generally have to be at an arms-length basis given the jurisdictional blending rules would apply anyway to offset any adjustments. There are a couple of exceptions to this general rule:
(1) where the transactions involve an excluded entity, an investment entity or a minority-owned entity (as the latter two would not be subject to jurisdictional blending anyway); and
(2) where domestic transactions give rise to a capital loss.
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