SGATAR
Study Group on Asia-Pacific Tax Administration and Research
Comply with and correctly apply international standards through coordination and cooperation among nations
With the acceleration of globalization and the increasing number of multinational enterprises, the financial transactions of these companies are becoming increasingly complex and diversified. Moreover, attempts by companies to transfer profits to low-tax jurisdictions through transfer pricing using the liquidity and substitutability of financial transactions are becoming more acute.
The OECD released the Transfer Pricing Guidance of Financial Transactions, as part of the Base Erosion and Profit Shifting (BEPS) project Action 4 and 8-10, in February 2020. This revision aligns with the understanding that intra-group financial transactions should reflect the conditions made or imposed between the two enterprises in their commercial or financial relations from those which would be made between independent enterprises under the Article 9 of the Model Tax Convention.
Furthermore, addressing base erosion through financial transactions such as corporate borrowings and interest expenses have been a major ongoing issue in international discussion.
The issue of profit shifting by multinational enterprises through financial transactions inherently involves multiple countries involved in the transactions, not just the country where the company is domiciled. Therefore, resolving this issue requires not only establishing international standards but also concerted efforts among various countries to comply with and correctly apply these international standards through coordination and cooperation among nations.