Transfer Pricing Issues and Concerns

Abstract

It is the OECD’s assessment that “the transfer pricing problems raised so far are not unique to electronic commerce, [but] the increased speed and mobility of business activities and cross-border transactions may raise new difficulties in the application of transfer pricing methods”. (op cit OECD Tax Policy Studies E-Commerce: Transfer Pricing and Business Profits Taxation No. 10 (2005) OECD, France, p66). The point at issue is that problems regarding effective and efficient application of taxation are intrinsic to traditional transfer pricing principles and are not peculiar to eCommerce but are amplified by eCommerce. Transfer pricing issues and concerns are of significance in that they further demonstrate the impact of technology on taxation. The primary significance of VAT is that in its current form it is a relatively effective tax to apply to eCommerce because it is more flexible than other taxing systems and, therefore, it is more easily adapted to possible variations in business practices caused by technological amelioration. Furthermore, VAT is more amenable than income tax (even if theoretically minimal in comparison) to government application on a global scale and, therefore, to boosting government revenue globally.