What database issues do developing countries face?
In recent years, international tax community have become increasingly aware of the issues that developing countries face when it comes to accessing databases and administering transfer pricing. There is a distinct lack of high-quality comparables data available to organizations in developing countries, making it difficult for them to carry out a complex transfer pricing analysis or valuation of intangibles. This is an issue that has gained global attention, particularly that of the Organisation for Economic Co-operation and Development (OECD), which has released papers, reports and guidelines into how such challenges can be overcome to create a fairer global tax agenda.
One such document was the Paper on Transfer Pricing Comparability Data and Developing Countries, released in 2014, following the G8’s request at its Lough Erne summit (2013). The OECD was asked “to find ways to address the concerns expressed by developing countries on the quality and availability of the information on comparable transactions that is needed to administer transfer pricing effectively”. The paper was subsequently prepared by the OECD secretariat, in conjunction with the Task Force on Tax and Development, and outlines possible approaches to overcoming the issues relating to the lack of comparables data.
Here are some of the solutions the paper suggests for addressing the issue:
Enhancing the scope of comparables data sources
The paper states that it could help if guidance or assistance were available about using commercial databases effectively, selecting foreign comparables (and knowing whether to adjust them for reliability), and finding reliable comparables data through other means.
Supporting the funding of database access
Paragraph 14 of the paper discusses the problem of how tax authorities in developing countries question whether investing in commercial database access is a priority for the country, given their limited budget. One solution to this, it states, is that donors could provide support to help with the funding of the database access.
Broadening the search for comparables data
Paragraph 19 of the paper references Paragraph 3.38 of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2012), which says that “independent transactions may be scarce in certain markets and industries”. The paper suggests that one option for overcoming this scarcity is to extend the search for comparables to include “uncontrolled transactions in the same industry but in other geographic markets”.
Using foreign comparables effectively
Paragraph 20 of the paper goes on to note the complexity of finding suitable foreign comparables to include in transfer pricing analyses. It suggests that countries that have experience in selecting foreign comparables could develop guidance for other countries.
Here at RoyaltyRange, our OECD BEPS-compliant royalty rate database provides high-quality, reliable data for organizations in more than 40 countries. We can provide the support required to use the database effectively and source comparables data for transfer pricing and other purposes. Contact us at RoyaltyRange today to find out more.
Asta Rudzikiene, Director
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