With financial support from GIZ, CIAT alongside renowned experts have developed proposals to improve the control of transfer pricing

Within the framework of a regional cooperation program financed by GIZ, CIAT has developed the English-language version of a document entitled “A cocktail of measures for the control of abusive transfer pricing manipulation, with a contextual focus on low-income and developing countries” 

These proposals are the result of years of experience by the authors in the subject matter related to “the cocktail”. Their main purpose is to solve known problems to make transfer-pricing control more manageable. In some cases, these proposals also seek a higher level of simplification and certainty, while lowering the costs of administration and/or compliance. The cocktail presents novel ideas as well as already known practices that have been adjusted to the reality of developing countries; all of this while respecting the guidance of the “Arm’s Length Principle”.

The document has been prepared by experts from CIAT and Mexico, with the feedback of professionals from different fields in Argentina, Brazil, Colombia, Ecuador, Honduras, Italy, Mexico, United States, Uruguay, Venezuela and the members of CIAT’s International Taxation Network, who met in 2018 in Antigua, Guatemala.

The cocktail consists of three “ingredients” and five “condiments”:

Ingredient 1: Approach to apply the ‘Best-Method Rule’.

Ingredient 2: Referential profit margins.

Ingredient 3: Import/Export of Raw Materials.

Condiment 1: Risk assessment model for transfer pricing and international tax audits.

Condiment 2: Geographical market adjustments.

Condiment 3: International double taxation (access to MAP).

Condiment 4: Alternative mechanisms for dispute resolution between the taxpayer and the tax administration.

Condiment 5: Sanctioning regime to ensure compliance with transfer pricing obligations.

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