Transfer pricing occurs when companies exchange goods or services for pay with other affiliated companies. Transfer mispricing occurs when one company sells goods or services to another related company at an inflated or deflated price in order to allocate profits to a lower-tax jurisdiction. Because these transactions are internal to a multinational company, they are often not subject to market pricing. This program area focuses on how to distinguish between legitimate transfer pricing and transfer mispricing.
Related-party transactions in mining can be broadly grouped into two categories: the sale of minerals and/or mineral rights to related parties, and the purchase or acquisition of various goods, services, and assets from related parties.
Developing countries require sector-specific expertise to detect and mitigate transfer mispricing in the mining sector. One way governments can address transfer mispricing is by passing laws and regulations that request companies to apply the “arm’s-length” principle where related-party transactions are treated as if they were transactions on an open market. However, it is critical that tax administrations have the capacity to implement tax avoidance rules to deal with transfer mispricing is critical.
