The OECD Approach to Transfer Pricing: A Critical Assessment and Proposal

  • Hagen Luckhaupt
  • Michael Overesch
  • Ulrich Schreiber
Part of the MPI Studies in Tax Law and Public Finance book series (MPISTUD, volume 1)


The OECD approach to assessing transfer prices relies on the arm’s length principle. The intra-firm transaction is compared to a market transaction. However, this comparison is conceptually flawed because market prices for intra-firm transactions rarely exist. As a consequence, the identification of comparable transactions requires data that are often unavailable. The lack of relevant data provides considerable room for maneuvering. A survey of the empirical literature confirms that the OECD approach is associated with profit-shifting opportunities and, in particular, with high double taxation risks and assessment costs. We suggest a decrease in the complexity of current transfer pricing rules. We propose a transaction-based apportionment method that combines a fixed standard profit margin with apportionment of residual profits. Reliance on a small set of easily observable and measurable factors to assess transfer prices reduces compliance and enforcement costs as well as double taxation risks.


Transfer Price Enforcement Cost Taxable Profit Formula Apportionment Profit Allocation 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • Hagen Luckhaupt
    • 1
  • Michael Overesch
    • 2
  • Ulrich Schreiber
    • 3
  1. 1.University of MannheimMannheimGermany
  2. 2.Goethe University FrankfurtFrankfurt am MainGermany
  3. 3.University of MannheimMannheimGermany

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