It has been a great privilege to edit this second edition of The Transfer Pricing Law Review, and in particular to welcome additional contributions from a range of countries including India, Japan and Switzerland.

This publication aims to give readers a high-level overview of the principal transfer pricing rules in each country covered. Each chapter summarises the substantive transfer pricing rules, explains how a transfer pricing dispute is handled – from initial scrutiny to litigation or settlement – and discusses the interaction between transfer pricing and other parts of the tax code, such as withholding taxes, customs duties and attempts to prevent double taxation.

With the notable exception of Brazil, which adopts a formulary approach (discussed in detail in the Brazil chapter), all countries covered in this review apply an arm's-length standard and adhere, at least to some extent, to the OECD Transfer Pricing Guidelines. However, as these chapters make clear, there remains significant divergence both in countries' application of the arm's-length standard (e.g., which transactions does it apply to? Which pricing methods are preferred? Are secondary adjustments required?) and in the documentation requirements imposed. Transfer pricing practitioners, therefore, cannot simply assume that the OECD Guidelines contain all the answers, but must engage with their detailed application in each country.

This review contains contributions from 23 countries, covering four continents and eight of the world's 10 largest economies. We are very grateful to all the authors for lending their time and expertise to this project.

Transfer pricing rules are, of course, a central plank in governments' fight against profit shifting, and the application and evolution of these rules will (rightly) continue to be high up the corporate tax agenda for many years to come. It appears that, over the next year or so, there will be three principal areas of focus:

  1. Tax authorities are beginning to get to grips with the first set of country-by-country reports disclosed to them. This is likely to lead to more disputes in the short to medium term. In particular, many tax authorities will now take a greater interest in businesses' full value chain, and whether the reward for all of the countries in the value chain is commensurate with their contribution. Merely looking at the provision between the local company and its contractual counterparty will no longer suffice.
  2. As Edward Froelich and Jessica Stern note in the United States chapter, the sweeping tax reforms passed in the US at the end of 2017 will have a significant impact on transfer pricing worldwide. Many public controversies surrounding transfer pricing have involved US companies that historically have been entitled to leave profits from overseas sales in low- or no-tax countries until the relevant cash was distributed back to the US, even where those profits were properly attributable to DEMPE functions based in the US. The 2017 US tax reforms have removed the ability to do this, substantially reducing the benefits that US businesses could derive from allocating too much profit to IP owners and too little profit to local distributors. However, this new regime has retained a preferential tax rate for overseas sales through the FDII and GILTI regimes. Given change in law risk, it looks likely that many US businesses will continue to keep their IP offshore and pay tax under the GILTI rules, rather than onshoring it to the US.
  3. Similar public controversies have also driven a number of countries to advocate special tax regimes for digital businesses, which move away from the arm's-length standard. Digital taxes have already been enacted in India, Israel and Italy, and furthermore, both the European Union and United Kingdom have proposed 'interim' tax solutions for digital businesses, which involve some form of revenue-based tax. This has the potential to take some of the political heat out of the transfer pricing debate; equally, however, it could prompt other countries to ask whether, like Brazil, a non-arm's length standard should be applied for industries outside the digital arena.

Finally, we would like to thank the publishing team at Law Business Research for their diligence and enthusiasm in commissioning, coordinating and compiling this review.