Regulation Governing Transfer Pricing Accounting Essay

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In India, before the amendment in 2001, there was no specific legislation dealing with the arms length principle and transfer pricing. Even though there was no express legislation on the subject, the concept of transfer pricing has always been there in the Indian income tax law. The existence of the concept of related party transactions is evident from provisions like Section 40A (2) [1] which disallows deductions in respect of expenditure made by the assessee to related parties, if such payments are excessive or unreasonable, and Section 92, which allows adjustment of profits accruing to resident from business with non-resident, if such profits are less than ordinary due to 'close connection.' The present transfer pricing guidelines were added in the Income Tax Act, 1961 by the Finance Act, 2001 [2] with a view to provide a statutory framework for computation of reasonable, fair and equitable profits and tax in India, in the case of multinational enterprises [3] . At present, the Indian transfer pricing guidelines comprise Sections 92 and 92A to 92F along with the Rules 10A to 10E of the Income Tax Rules, 1962 [4]  and Accounting Standard 18. [5]  The effect of these provisions is to ensure that profits taxable in India are not understated, or losses are not overstated by declaring lower receipts or higher outgoings than those which would have been declared by persons entering into similar transactions with unrelated parties in the same or similar circumstances. [6] 

Section 92 while introducing the principle ensures that income arising from an international transaction between associated enterprises shall be computed with regard to arm's length price. [7] Further, it provides that the costs or expenses allocated or apportioned between two or more associated enterprises shall be at arm's length price. The Finance Bill, 2012 has proposed an amendment to widen the scope of all the transfer pricing provisions. The bill intends to bring domestic related parties under the purview of the Transfer Pricing regulations [8] .

Section 92A defines "associated enterprise" and gives thirteen circumstances in which two enterprises will be deemed to be associated enterprises whereas Section 92B defines "international transaction" to mean a transaction between two or more associated enterprises where at least one of them is a non-resident. This section includes transactions in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, or mutual cost sharing agreement [9] .

Section 92F provides for definitions and meanings of various terms involved in computation of arm's length price. The text of section 92C of the Act [10]  read with Rule 10B [11]  provide for computation techniques to determine the arm's length price. After giving detailed descriptions of the abovementioned methods, the rules state that on analysing the transaction, the method which is found to be the most appropriate, is applied for computation of arm's length price [12] , the implementation of which is carried on in the manner specified by the rules made by the Board. In a scenario where more than one price can be determined by the most appropriate method, a provision is made to use the arithmetical mean of such two or more prices as the arm's length price [13] . The provision also lays down a safe harbour where the tax authorities accept the transfer price determined by the tax payers.

Even though under the transfer pricing provisions of the Income Tax Act, the assessee has the first opportunity to determine the Arm's Length Price, section 92C(3) empowers the Assessing Officer (AO) to determine the arm's length price in relation to the transaction where he is of the opinion that the price charged in the international transaction has not been determined in accordance with sub-sections (1) and (2), or information and documents relating to the international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of Section 92D and the rules made in this behalf, or the information or data used in computation of the arm's length price is not reliable or correct, or the assessee has failed to furnish within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D. This opinion however, must be formed only in the course of the proceedings and must be based on material information or documents. The assessee must be given an opportunity of being heard [14] .

If the assessee has determined the arm's length price in accordance with the statutory requirements, and the data used for determining the arm's length price is reliable and correct, there can be no intervention by the Assessing Officer. However, if in the process of re-determination of the of arm's length price by the Assessing Officer, it is found that the transfer price is not in compliance with the arm's length principle, a penalty can be levied on the party as per Section 271(1)(c). [15]  This penalty can range between one thousand to twenty five thousand rupees, but cannot exceed three times the amount of tax sought to be evaded. On the other hand, no penalty is levied where the assessee proves to the satisfaction of the Assessing Officer or the Commissioner of Income Tax (Appeals) that the price charged or paid in such transactions has been determined in accordance with section 92C in good faith [16]  and with due diligence.

Section 92D of the Act read with rule 10D of the Rules requires every person who has undertaken an international transaction to keep and maintain such information and documents specified by the Board. Such information is required to be presented within thirty days of demand by the Assessing Officer or Commissioner (Appeals) during the course of any proceedings under the Act. The section 92E of the act along with Rule 10E makes it mandatory for every person who has entered into an international transaction during a previous year to obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form and manner. Through both these provisions, the element of transparency was appended to the Act in respect of international transactions.

Non compliance with the above-mentioned provisions attracts penalty provisions such as Section 271 of the Income Tax Act. Section 271AA [17]  of the Income Tax Act levies penalty for a failure to keep and maintain information and documents, whereas Section 271G [18]  levies penalty for a failure to furnish any such information or documents in case of an international transaction under Section 92D. Both these provisions make the assessee liable to pay a penalty to the extent of two per cent of the value of each international transaction entered into by him whereas section 271BA [19]  of the Act makes the assessee liable to pay a penalty to the tune of one hundred thousand rupees in case of a failure to furnish the report of the accountant as required by section 92E.

Apart from the above-mentioned provisions, Accounting Standard 18 (AS-18) governs the transfer pricing assessments in India and requires disclosure of any elements of the related party transactions necessary for an understanding of the financial statements. [20] 

The Income Tax Rules were revised in the year 2002. This revision inserted a few simplification measures to the law of transfer pricing through provisions like Rules 10D(2) and 10D(4). As of now, small international transactions entered into by the assessee having an aggregate value less than one crore rupees are granted exemption from documentation requirements [21] , and international transactions which continue to have effect over more than one previous year with no significant change in facts have a simplified documentation requirement [22] . The simplification and relaxation can also be seen from the proviso of Section 92C of the Act which allows a difference of five per cent between the computed arm's length price and the transfer price, and treats the latter as the transfer price.

The disputes which arise under the above mentioned provisions of transfer pricing are usually resolved through court procedure in the form of appeals initiated by the dissatisfied parties. However, India has also seen a growth in the following two mechanisms which form an alternative to court procedures for efficient dispute resolution:


The Dispute Resolution Panel (DRP) mechanism was introduced by the Finance (No. 2) Act, 2009 with effect from April 1st, 2009, in the form of section 144C of the Income-tax Act, 1961. It is a fast track arrangement to resolve transfer pricing disputes arising under Sec. 92 of the Income Tax Act, 1961 [23] . It is a quasi-judicial body comprising of three Commissioners, operating on the idea that a settlement should be reached at the first stage of assessment within the department itself [24] , as opposed to the previous scheme in which an action could only be brought about after the assessment order was passed. The new method requires the assessing officer to pass draft assessment orders. The assessee must either accept these orders or refer them to the panel within 30 days of the receipt of the draft order. The panel is bound to decide the matter within nine months of referral after taking into consideration the draft order of the Assessing Officer, the order of the TPO and the taxpayer's objections and evidence. The above mentioned decision is binding on the revenue, and is appealable before the Tribunal. While acknowledging that transfer pricing disputes are bound to arise due to conflicting interests, the DRP increases public confidence in the integrity of the revenue department and acts as a layer to protect foreign companies from casual assessment process/orders passed resulting in huge tax demands.

In innumerable leading cases like Vodafone Essar Ltd case [25] , Ericsson AB v. Addl. Director of Income-tax [26] , Toyota Kirloskar Motor (P.) Ltd. v. Addl. CIT [27]  and M/s Dusseldorf India (P.) Ltd. v. Dy. CIT [28]  the taxpayers referred the dispute to the DRP which resulted in a speedy settlement. The end result of setting up of such a panel is building the image of India as an investor-friendly country, by facilitating faster resolution to tax disputes involving overseas entities without litigation. [29] 


Mutual Agreement Procedure (MAP) is an efficient and flexible ADR mechanism which is used for the resolution of tax disputes between parties belonging to two States agreeing to avoid double taxation under a tax treaty. The MAP provisions are covered in the Double Tax Avoidance Agreements that India has with various countries and hence, multinational companies resident in other tax jurisdictions can seek relief under the MAP provisions by approaching the competent authority if they incur any transfer pricing additions for their operations in India. [30]  Such a relief is available irrespective of the remedies available in the domestic laws. [31]  In accordance with the MAP articles, transfer pricing disputes are mostly resolved by the competent authority of the country in consultation with competent authority of the other country. However, these articles do not compel competent authorities to reach a settlement. They are only required to put in their best efforts to reach an agreement.

India has recently settled a dispute over taxing profits of captive IT services units and research arms of US firms through MAP mechanism. As per the report of a financial daily, this settlement has bolstered New Delhi's position as a preferred destination of such investments. [32]  To add to the benefits of this procedure, in India existence of MAP does not prevent an Appellate Authority from proceeding with an appeal and disposing it of and hence does not possess any downside.


4.2 Transfer Pricing Under The Direct Tax Code Bill, 2009 & Direct Tax Code Bill, 2010 And The Recommendations Of The Parliamentary Standing Committee

This financial year was scheduled to witness a few pertinent changes in the tax regime in India with the introduction of the Direct Tax Code (DTC) in April, 2012. However, even after the budget, there has been no mention of the DTC or its implementation.

The Direct Taxes Code bill was introduced in the Lok Sabha in 2009 [33]  with the aim of forming unified user friendly tax legislation with simpler and less ambiguous provisions. It is very important to take into consideration the provisions pertaining to transfer pricing under this bill, because it is the future of the tax regime in India. Although most of the provisions relating to transfer pricing in the proposed code are more or less similar to those prevalent in present direct tax laws, the Direct Taxes Code Bill envisages certain strategic changes.

An important change was proposed by the Direct Tax Code Bill of 2010 in certain procedural aspects. At present, it is the Transfer Pricing Officer (TPO) who completes the Transfer Price Audit and sends the copy of the order to the Income Tax Officer. The Income Tax officer, then follows up and completes the assessment incorporating the order received from Transfer Pricing Officer and concludes the assessment of other corporate law adjustments [34] . However, as per the amendments proposed by the Direct Tax Code Bill of 2010 after the determination of the arm's length price, the Transfer Pricing Officer forwards his report to the Income Tax Officer within a time frame of 42 months from the end of the financial year in which the international transactions have taken place. [35]  The completion of the assessment, taking into consideration the arm's length price as determined by the Transfer Pricing Officer, is then carried out by the Income Tax Officer. The completion of the assessment can only be carried out after taking into consideration the changes and adjustments proposed by the Transfer Pricing Officer. [36] 

The concept of Advance Pricing Agreement (APA) first came to the picture in the Bill of 2009 and was reiterated in the Bill of 2010. If passed, it would perhaps be the biggest transformation in the direct tax laws in India with respect to transfer pricing. The relevant clause of the proposed Direct Tax Code reads: "The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person in respect of the arm's length price in relation to an international transaction which may be entered into by that person on the basis of the prescribed method being the most appropriate method. [37] " The said agreement is proposed to be valid for a maximum period of five consecutive financial years unless there is a change in law or facts and will be binding on the tax payer, the CIT and the income tax authorities below him. The Parliamentary Standing Committee on the Direct Taxes Code Bill of 2010 has made certain recommendations regarding APAs. It has been suggested that the APAs should be made time bound in nature and to further encourage APAs, the current tax treaties of India should be suitably amended and the ones to be made in the future should be drafted while keeping APAs in mind. The reason why this proposed provision has received such support is that it may bring in certainty and consistency in the transfer pricing provision with respect to the transactions covered in the agreement.

Another important provision proposed by the Direct Tax Code Bill, 2009 and that of 2010 is the adoption of safe harbour rules in determination of arm's length price. Safe harbour rules in relation to computation of arm's length price, mean circumstances in which the income-tax authorities shall accept the transfer price declared by the assessee as the arm's length price [38] . The Finance Act, 2011 also adopted these rules in the Income Tax Act in the form of section 9CB. However, the proposal in the Direct Tax Act absolves taxpayers from the burden of a detailed and accurate analysis for transfer pricing and hence must be mentioned as an important amendment. This proposal of introducing safe harbour rules has been positively accepted as a welcome step, with a hope that it will provide for certainty, and will help resolve the unnecessary disputes between the taxpayer and the tax authorities especially when the disputes are in relation to small amounts of revenue. It is also perceived to be a step leading to administrative convenience for reducing the compliance cost of the tax payer with transfer pricing regulation.

The report of the Parliamentary Standing Committee on the Direct Taxes Code Bill of 2010 also made certain recommendations relating to transfer pricing in general apart from the recommendations made regarding APAs. It was recommended that small and negligible sundry transactions, for which a monetary threshold should be prescribed, must be excluded from the purview of transfer pricing to reduce the burden of cases and commercial transactions with notified non-co-operative jurisdictions must be altogether excluded from the purview of transfer pricing. It has been also recommended that the determination of arm's length price being a technical and significant matter, must be entrusted to an independent agency comprising technical and judicial members.

The above-mentioned proposals summarize the changes envisaged by the Direct Tax Code Bills. However, whether these proposals will help in maintaining the thin balance required to be maintained in transfer pricing is a question that can only be answered after observing the execution of these provisions.

4.3 Problems Faced In Indian Transfer Pricing - Possible Solutions and Recommendations

A few experts believe that the current transfer pricing regulations are quite comprehensive in the sense that not only the taxpayers and transactions covered are defined, but also the methodologies to be applied for determining the arm's length price and documentation to be maintained by taxpayers are laid down explicitly [39] . However, there remains a great scope for improvement and it can be made possible through the proactive efforts of the legislature, the judiciary and the quasi-judicial bodies. We shall now look at some major problems that have been faced by taxpayers and tax authorities in transfer pricing. Some of the problems are intended to be resolved by the Direct Tax Code whereas some still seek amendment for remedy.

The calculation of an appropriate arm's length price in accordance with the Indian transfer pricing guidelines is a challenging task. To add to the woes of the assessee, Indian transfer pricing regulations do not recognize a range based concept for arm's length price [40] . Although a safe harbour of +/- 5 per cent has been provided, it does not suffice against the changing nature of modern economy. The fixed margin of the five per cent rule across all segments of business activity and range of international transactions has become obsolete. It has outlived its utility and must be replaced by a percentage comparable to the current economic situation of the country. Fortunately, the Finance Act of 2011 amended the Income Tax law to the extent, by providing that instead of a variation of the five per cent, the allowable variation should be such percentage as may be notified by the central government, thus providing a solution to the problem. However, the Finance Bill, 2012 aims at reducing the safe harbour provision to three per cent which would apply with retrospective effect to cases pending before the assessing officer as of 1st October 2009 [41] . Further, the proposal states that an international transaction where the variation between the arithmetical mean and the price at which the transaction has actually been undertaken exceeds five percent of the arithmetical mean, the assessee shall not be entitled to exercise the option as referred to in the said proviso." This proposal is a big step backward. Such retrospective amendments on international transactions show an inconsistency and unpredictability in the system of law, creating a negative image of the country in the minds of foreign investors.

This seems to be a step in the reverse direction. It is the view of the authors that the condition of variable percentage established by the Finance Bill of 2011 is the most suitable way to evaluate transactions in the future and hence, an amendment should be brought in the DTC bill 2010 in that direction.

The safe harbour provision of + 5 per cent, where the tax authorities accept the transfer price determined by the tax payers, [42]  has been made available to the assessee on his own assessment of the transfer price has also raised a few practical questions in the minds of the taxpayers. The proviso to Section 92C(2) which states, "where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean". It provides the taxpayer a safe harbour to the extent that the value of the international transaction is within a range of +/- 5 per cent of the arm's length price. Assessment experience indicates that taxpayers have been given the benefit of the safe harbour only in cases where more than one price has been determined by the most appropriate method and arithmetical mean of such prices has been taken as the arm's length price. In cases where there is a single arm's length price, the benefit of the safe harbour has been denied to the taxpayers. Such injustice has been caused by strict interpretation of the courts. A reasonable construction of the words of the legislation needs to be made to avoid such injustice in the future. The proposals of the Direct Tax Code Bill 2010 have resolved this problem. Clauses 117(5) & (4) of the Bill allow the 5% exemption in circumstances where a single price is determined or more than one prices are determined by most appropriate method.

The provisions of the current legislation provide five methods for computation of the arm's length price, but do not recognize a hierarchy in the prescribed five methods. There are no specific rules or regulations which determine the method to be used by the assessee in specific circumstances. This causes a great deal of confusion at the time of computation, leading to inaccuracy and unnecessary litigation. There have been many cases like where the central issue was the computation method to be used by the assessee. In the opinion of the authors, this situation arises due to a lack of clarity in the transfer pricing guidelines. It is strongly recommended that supporting rules be made to the DTC which will provide guidelines with respect to the use of computation methods.

Another problem faced in the past was the limited powers of the Transfer Pricing Officer (TPO). The TPO did not have the power to enter premises of the taxpayer and collect documents for inspection. This prevented the TPO from carrying out extensive investigation unless the taxpayer co-operated. It led to an overall delay in the assessment procedure and hence a loss in revenue. This power has finally been given to the TPO by the Finance Act of 2011.

One of the biggest setbacks to the Transfer Pricing regime in India is pending litigation. Recently, many MNCs like IBM, Capgemini and Accenture have come under the scanner of taxmen due to their questionable transfer pricing practices. Many such disputes go to courts everyday despite the existence of expert alternative panels. Encouraging the use of the DRP mechanism would result in building the image of India as an investor-friendly country. [43] 

Another way of tackling this excess litigation is through Advanced Pricing Agreements (APA). At present, India lacks provisions for Advanced Pricing Agreements but the same has been provided for in the Direct Taxes Code Bill. An advanced pricing agreement is a legal agreement between a tax authority and a taxpayer which enables transfer pricing issues to be agreed upon on a prospective basis. Many APAs are also undertaken on a bilateral basis involving two or more tax authorities, where there will be an agreement on how transfer pricing issues are to be resolved between the two tax authorities. These help because they can be crafted to find unique solutions to more complex situations and they provide the taxpayer with certainty of treatment, and, in the bilateral case, can eliminate the problem of double taxation. Many countries in the world have adopted APAs. These arrangements avoid controversies and associated litigation costs [44] , hence must be promoted as an ideal setup for India. Fortunately, the Finance Bill, 2012 has proposed the implementation of Advance Pricing Agreements from the 1st of July 2012. Section 92CC is proposed to be inserted into the body of the Act by which the Board can enter into an advance pricing agreement with any person by determining the arm's length price in relation to an international transaction to be entered into by that person. Further, intricacies of advance pricing agreements, similar to those under the DTC Bill of 2010 have been worked out through the proposed provision. If the bill is passed along with the provisions of the APAs, the transfer pricing regime will see the dawn of a new era with negligible pending litigations.

The current legislation defines associated enterprises in Section 92A. After defining through 92A(2), it provides for thirteen circumstances under which a company shall be deemed to be an associated enterprise. Thus, to prove that two companies are associated enterprises of each other, it is essential to prove that they fall under one of the thirteen illustrations envisaged under the provision. [45]  Thus, the definition of an associated enterprise under the Income Tax Act is a limited and restricted one. This problem also continues into the DTC Bill, 2010. In the opinion of the authors this problem is a major loophole in the Act. A company can easily escape tax liability by proving that it does not fall in any of the illustrations and is therefore not an associated enterprise. Thus, the authors suggest a more comprehensive definition of associated enterprise which is not completely based on illustrations but elaborates on the actual meaning of the term.

Currently the penalties for default with respect to transfer pricing are very high. Penalties to the tune of 100 to 300% of the additional tax and 2% penalty of international transactions for documentation are very commonly levied on defaulting parties. It is observed that these penalties are significantly high [46] . Even though high penalty rates prove to be exemplary punishments, they tend to have adverse effects in the field of taxation. The authors recommend that the stringent penalties be lowered and rationalized to ensure a more effective implementation of the taxation laws.

4.4 Transfer Pricing in the West And OECD'S Role

Transfer pricing being a concept of international character, has to be read with practices across different countries for thorough understanding. The Organization for Economic Cooperation and Development (OECD) first took note of the practice of transfer pricing in the year 1979 by publishing its report on the subject. On July 27, 1995, the OECD released the first draft of its transfer pricing guidelines. These have been updated in July, 2010 [47] . The OECD has adopted the principle in Art 9 of the OECD Model Tax Convention, to ensure that transfer prices between companies of multinational enterprises are established on a market value basis. It provides the legal framework for governments to have their fair share of taxes and for enterprises to avoid double taxation on their profits. The guidelines are voluntary in nature and serve as an international model code for countries to use as a base for their own customized domestic tax laws for regulating transfer pricing. Nonetheless, most member countries do not have their own detailed transfer pricing regulations and rely on OECD Guidelines. Over 60 governments have adopted the transfer pricing rules [48] .


The English domestic law contains general and special provisions on transfer pricing issues within Schedule 28AA of the Income and Corporation Taxes Act, 1988 [49] and Part 4 of the Taxation Act, 2010 [50] . They deal with transactions between any two persons under "common control". The provisions effectively incorporate OECD Model Tax Convention's Article 9 and the OECD Guidelines into domestic law and extend the arm's length standard to all transactions between related parties. The transactions are defined to include "arrangements, understandings and mutual practices (whether or not they are intended to be legally enforceable)." In comparison to Indian transfer pricing regulations, it can be said that the scope of the U.K. Act is wider when it comes to the coverage of the "related party transactions." Where the Indian regulations have clearly laid down specific instances and transactions which would amount to a related party transaction, the U.K. regulations have used broader terms while describing a transaction that would be considered a related party transaction; or in other words, transactions between parties under common control. They also include a series of transactions, including third party transactions, in pursuance of or in relation to the arrangements. There are no specific statutory rules on how the arm's length prices are to be determined, or on the documentation or penalties relating to transfer pricing. [51]  If non arm's length transactions do not result in a tax advantage, the adjustments are not permitted [52] . April 2004 onwards, transfer pricing rules apply to both domestic and cross border transactions. Every domestic transfer pricing adjustment is matched by a corresponding adjustment to avoid double taxation. Earlier, this was not the case with India as domestic transactions were not covered by the Indian transfer pricing regulations. An amendment in the Finance Bill, 2012 has proposed to include specified domestic transactions while considering a transaction for computation of arm's length price. This amendment was overdue for quite some time since the inclusion of domestic transactions was done in the U.S. and U.K. many years ago.

In India, there is a lack of transfer pricing regulations that explicitly cover transfers of intangibles and intellectual property rights. The present regulations generally include intangibles but do not mention them as have been specifically laid down in Section 1.482-4(b) of the Internal Revenue Code in the U.S.A. A large number of multinational contacts signed today are relating to the transfer of patents, designs, formulae, copyrights, methods, surveys, know-how and brand names, the price of which cannot be quantified by a mathematical formula or by comparative analysis. Due to their distinct nature, they require special rules to govern them. This issue can be tackled by forming a team of experts to draft rules to address possible situations that may arise out of the said transfers.


The United States of America has been the pioneer in setting up regulatory norms for transfer pricing. Decades ago in 1928, Section 45 of the U.S. Internal Revenue Code had briefly dealt with aspects of transfer pricing until detailed regulations were added in 1968. The year 1988 saw the "white paper" recommendations followed by the 1992 regulations. Finally, on 1st of July, 1994 the U.S. Internal Revenue Service issued rules for transfer pricing under Section 482 of the Internal Revenue Code [53] . The U.S. law applies rules to both domestic and cross border transactions between commonly controlled entities to ensure an arm's length result. The regulations recommended that a best method rule or the method that gives the most reliable arm's length result based on the facts and circumstances of the transaction under review should be selected. The factors to consider include the degree of comparability between controlled and uncontrolled transactions, the quality of the data and the assumptions, and the number, size, and accuracy of the adjustments required under each method [54] . Transfer pricing rules in the U.S.A. are strictly applied on related party transactions within a multinational enterprise, with heavy penalties for any violation. The provisions require comprehensive contemporaneous documentation and disclosures to support transfer pricing policies. The tax payers are required to report the arm's length result in their tax return and are subjected to a heavy penalty if they fail to do so. [55] 

The Indian regime has a lot to learn from the U.S. system. There is a lack of transfer pricing regulations in India that explicitly cover transfers of intangibles and intellectual property rights. The present regulations generally include intangibles but do not mention them as have been specifically laid down in Section 1.482-4(b) of the Internal Revenue Code in the U.S.A. A large number of multinational contacts signed today are relating to the transfer of patents, designs, formulae, copyrights, methods, surveys, know-how and brand names, the price of which cannot be quantified by a mathematical formula or by comparative analysis. Due to their distinct nature, they require special rules to govern them. This issue can be tackled by forming a team of experts to draft rules to address possible situations that may arise out of the said transfers.

Many countries have specific transfer pricing legislation and follow the OECD Transfer Pricing Guidelines in case of ambiguity. Among the OECD member States, the major exceptions are Ireland and Luxemburg who rely on their general anti avoidance rule to counter abusive transactions. Among the non OECD countries, Brazil, Kazakhstan and Russia do not fully confirm to the OECD Guidelines. However, even among the countries that have adopted the OECD Guidelines, the level of compliance varies due to inexperience or technical issues like local customs. Despite these hurdles, the OECD Guidelines are being used extensively to monitor cross border transactions [56] .