The Application of Transfer Pricing Adjustments

Descripción

Transfer pricing adjustments are where international tax theory breaks down. The OECD Transfer Pricing Guidelines set out in detail how an arm’s length price should be determined, yet remain silent on many of the scenarios in which the resulting adjustment must actually be applied. Enrique Martín Díaz Tong builds this book on that regulatory gap — not merely describing the state of the art, but identifying the unresolved scenarios, documenting them through comparative case law, and closing with a concrete proposal to amend paragraph 3.61 of the Guidelines and to incorporate a new paragraph 3.63.

The work moves from general principle to litigated case. Chapter 1 reconstructs the arm’s length principle and the normative role of the OECD Guidelines, mapping the scope of application across domestic and cross-border related party transactions and dealings conducted from, to or through low-tax and non-cooperative jurisdictions. Chapter 2 develops the valuation methods — comparable uncontrolled price, resale price, cost plus, transactional profit split and transactional net margin — alongside business valuation and intangibles, before introducing the financial approach to primary, bilateral, secondary and corresponding adjustments. Chapter 3 delivers the book’s central contribution: a critical reading of paragraphs 3.61 and 3.62, the scenarios they fail to contemplate — non-deductible expenses and non-deductible interest for corporate income tax purposes — and the mechanisms available to relieve the resulting double taxation.

Eighteen decisions from Spain, the United States, Canada, Peru, Panama and Costa Rica are analysed and systematised into six jurisdictional flowcharts, supported by more than sixty figures and over a hundred tables of fully worked numerical cases, including interquartile range analysis, the coefficient of variation and comparability adjustments.

Essential reading for transfer pricing practitioners, international tax counsel, tax authority officials and academics working on the least regulated — and most disputed — stage of the transfer pricing regime.

Foreword by Félix Vega Borrego.

Contenido

Foreword
Abstract
Resumen
Introduction

CHAPTER 1: UNDERSTANDING TRANSFER PRICING
1.1. Arm’s length principle and economic approach
1.2. The Role of the OECD Transfer Pricing Guidelines
1.3. Scope of application
1.3.1. Related party transactions
1.3.1.1. International transactions
1.3.1.2. National transactions
1.3.2. Transactions conducted from, to, or through low-tax, non-tax, or non-cooperative jurisdictions
1.3.2.1. Transactions conducted from a low or zero-tax territory or country
1.3.2.2. Transactions conducted to a low or zero-tax territory or country
1.3.2.3. Transactions conducted through a low or zero-tax territory or country

CHAPTER 2: TRANSFER PRICING METHODS
2.1. Traditional Methods
2.1.1. Comparable Uncontrolled Price
2.1.2. Resale Price Method
2.1.3. Cost Plus Method
2.2. Profit-Based Methods
2.2.1. Transactional Profit Split Method
2.2.2. Transactional Net Margin Method
2.3. Special Transfer Pricing Methodology
2.3.1. Business Valuation for Transfer Pricing Purposes
2.3.2. Transactions Involving Intangibles for Transfer Pricing Purposes
2.4. Financial Approach to Transfer Pricing Adjustments
2.4.1. Primary Adjustments
2.4.2. Bilateral Adjustment
2.4.3. Secondary Adjustment
2.4.4. Corresponding Adjustment
2.5. Tax burden and Transfer Pricing

CHAPTER 3: THE APPLICATION OF TRANSFER PRICING ADJUSTMENTS UNDER THE OECD GUIDELINES
3.1. Transfer Pricing Adjustments under the OECD Guidelines
3.1.1. Primary and Compensating Adjustments
3.1.2. Corresponding Adjustment
3.1.3. Secondary Adjustment
3.1.4. Comparability Adjustment
3.2. OECD Guidelines on Transfer Pricing Adjustments
3.2.1. Early guidelines and amendments
3.2.2. Analysis of Paragraph 3.62 of the Guidelines, regarding Transfer Pricing Adjustments
3.3. Scenarios Not Contemplated in Paragraph 3.61 of the Guidelines
3.3.1. Conceptual Framework
3.3.2. Examples of scenarios not contemplated
3.3.2.1. Expenses or costs deemed non-deductible for corporate income tax purposes
3.3.2.2. Non-Deductible Interest
3.4. Summary of identified issues
3.5. Proposal to modify and incorporate a paragraph into the OECD Guidelines
3.5.1. Proposed amendment to paragraph 3.61
3.5.2. Proposal for the incorporation of paragraph 3.63
3.6. Future Developments
3.6.1. Analyzing cases of adjustments for the sale of goods
3.6.2. Mechanisms to Avoid Double Taxation

Conclusions
Appendices
Bibliography

Autor

ENRIQUE DÍAZ TONG

Enrique Díaz Tong, PhD, is an author, academic, and international consultant specializing in transfer pricing, international taxation, and business valuation. He holds a PhD in Law, Government, and Public Policy from the Universidad Autónoma de Madrid (Spain), where he conducted five years of doctoral research focused on transfer pricing. He also holds an MBA from Universidad ESAN (Peru) and a Law degree from the Pontificia Universidad Católica del Perú (PUCP), with specialized studies in Tax Law.
Since 2002, he has taught Transfer Pricing at the postgraduate level at ESAN Graduate School of Business and has served as a visiting professor at the International Tax Center of Leiden University (the Netherlands). He is also the Founding Partner of TP Consulting, an international firm specializing in transfer pricing and business valuation, with a presence across Latin America and the United States.
He is the author of The Application of Transfer Pricing Adjustments (Palestra Europa, 2026), based on his doctoral research, and Precios de Transferencia (Palestra, editions published from 2023 to 2025). His academic work has also been published internationally, including articles in the International Transfer Pricing Journal of the International Bureau of Fiscal Documentation (IBFD). Since 2018, he has contributed to IBFD’s Global Transfer Pricing Explorer Plus as the author of the Peruvian and Colombian chapters. He has also served as coordinator and co-author of regional transfer pricing publications published by Thomson Reuters (2016–2019) and has contributed, as author and coordinator, to books published by the Peruvian Institute for Tax Research and Development (IPIDET).