Proposed Framework for Foreign Comparables
Selection and Adjustment

Framework and Empirical Papers
TPED / Research on Comparability Adjustments  / Proposed Framework for Foreign Comparables Selection and Adjustment

TPED is pleased to announce the publication of a Research Paper covering an economically sound and beneficial framework for selecting and adjusting foreign comparables, especially relevant in emerging and developing countries lacking comparables.

Academic Professors Dr. Bert Steens, Dr. Christof Beuselinck and Dr. Matthis Pettutshnig and business economist, Sébastien Gonnet, from TPED suggest a framework, based on a tree, for foreign comparables selection and for the use of upward country-risk adjustments, when relevant, extrapolating from the findings of empirical and statistical tests (performed by statistical and modelling firm TP Qube in partnership with TPED). TPED’s framework positions the risk profile of the country of the comparable (proxied by its sovereign rating) before its location. This challenges current transfer pricing practice of selecting neighbor countries and ignoring their country risk profile.

At a time, when revenue mobilization is a key development priority and essential to finance investments in human capital and infrastructure, TPED study should provide the tax administrations of emerging and developing countries a sound economic and beneficial framework for reviewing transfer pricing arrangements of multinational corporations. With the proposed approach, multinationals should also benefit from more objectivity and increased reliance on economic arguments by tax administrations.

TPED study, based on large datasets, also illustrates that simplification in transfer pricing – for instance fixed returns for certain “baseline” activities, as recently suggested by the OECD – is not out of reach. If such simplified measures are adopted at international level, the inherent risks of operating in the less developed regions of the World will need to be accounted for, with for instance higher than average” baseline” profits in these countries.

In their Paper, the authors express the wish to engage with “interested stakeholders (for instance, international or regional organizations)” to further enhance the contents and impact of their analyses.

The Paper is available in English and in French.

This publication is part of TPED’s Comparability Research Project (2018-2019), initiated early 2018.

English Version                 Version française