The United Nations Practical Manual on Transfer Pricing for Developing Countries (UN Manual) is a practical guide to implementing transfer pricing regulations, specifically addressing the perspectives of emerging and developing countries. It complements, but does not replace, the OECD Transfer Pricing Guidelines. For companies with international activities—particularly those with business partners in third countries outside the EU and the traditional OECD member states—the UN Manual is becoming increasingly important because it provides guidance on how tax authorities in these countries may assess transfer prices.
In the following, we summarize the added value of the UN Manual, its scope of application, and its relationship to the OECD Transfer Pricing Guidelines, and show what role the Manual can play in assessing transfer pricing issues with third countries.
1. Purpose and scope of the UN Manual
The UN Manual aims to provide states – especially those with limited administrative resources – with practical guidance on applying transfer pricing rules. It is primarily aimed at tax authorities, but is also relevant for businesses because it offers insights into typical audit priorities and the expectations of the authorities.
Key aspects of the application area:
- Focus on practice: Concrete examples, case studies and suggested wording for national regulations.
- Target audience: Especially useful for countries with a need to develop or catch up in the area of transfer pricing, but also for companies operating in these countries.
- Scope of topics:
- Application of the arm's length principle
- Functional and risk analyses
- Method selection and application
- Documentation requirements
- Special features in selected industries or situations (e.g. commodities trading, services, financing)
Companies benefit because the manual makes typical thought and argumentation patterns of many third countries comprehensible. This allows them to better anticipate how transfer prices will be scrutinized in tax audits outside the OECD environment.
2. Relationship to the OECD Transfer Pricing Guidelines
The OECD Transfer Pricing Guidelines are the central international reference framework for the interpretation of the arm's length principle. Many double taxation agreements and national tax laws refer explicitly or implicitly to these guidelines.
The UN Manual relates to the OECD guidelines as follows:
- Common basis: Arm's-length principle
Both the OECD guidelines and the UN Manual are based on the arm's length principle. The fundamental objective – a market-based allocation of profits between related companies – is identical. For companies, this means that the UN Manual does not fundamentally contradict the established transfer pricing system, but rather builds upon it. - Complementary perspective instead of a competing document
The UN Manual is not designed as a counter-proposal to the OECD Transfer Pricing Guidelines. Rather, it complements them by:- the perspective and particular challenges of states with lower administrative capacity,
- pragmatic solutions when data is limited (e.g., limited access to databases or market studies),
- Exemplary national implementations that may differ from the “classic” OECD implementation.
- Some leeway for differing accents
In certain areas, practical application may reveal different priorities than those considered from the OECD perspective, for example:- stronger emphasis on the source taxation rights of the state where the value creation physically takes place,
- A more critical examination of low-risk functions that nevertheless receive high returns,
- In some cases, stricter requirements apply to documentation and substance for payments abroad.
It is important for companies to recognize that even if the OECD Transfer Pricing Guidelines are followed, tax authorities that follow the UN Manual may draw different conclusions on individual issues.
- Legal binding
The OECD guidelines enjoy a high normative status where they have been explicitly incorporated into national law or administrative instructions.
The UN Manual is primarily a set of recommendations. Its practical impact, however, stems from the fact that numerous countries use it as a reference and guide for interpretation. For corporate groups, therefore, the decisive factor is not so much its formal legal force, but rather whether and how national auditors actually apply the Manual.
3. Added value of the UN Manual from a business perspective
For internationally active corporate groups, several concrete added values arise when the UN Manual is incorporated into their own transfer pricing strategy:
3.1 Transparency regarding examination prospects in third countries
The manual provides insights into
- how tax authorities in emerging and developing countries view typical transfer pricing scenarios,
- which risks are particularly relevant from their perspective (e.g. profit shifting to low-tax countries, inappropriate license and service fees),
- which documentation components are considered essential.
With this knowledge, companies can:
- to specifically supplement their existing documentation for third countries
- Anticipating typical critical questions,
- Design internal processes in such a way that evidence is generated and archived during ongoing business operations.
3.2 Practical guidelines for business models with limited data
Especially in developing countries, the data basis for traditional benchmark studies is often limited. The UN Manual shows how to proceed pragmatically in such cases, for example:
- Use of regional or sectoral comparative data when local data is lacking,
- enhanced qualitative justification (functional and risk analysis, value chain description),
- Using simplifying approaches, provided they are plausibly justified and consistently applied.
For corporate groups whose subsidiaries operate in markets with low data transparency, the manual thus provides valuable guidance on how to document and defend a "justifiable" arm's length approach.
3.3 Better understanding of national scope for action
The UN Manual provides examples of how states adapt transfer pricing regulations to their specific circumstances. These include, for example:
- special documentation requirements for raw material exports,
- country-specific safe harbor regulations or simplified methods,
- Industry-specific characteristics in the financial, service, or IP sectors.
For companies with complex value chains, this is helpful in order to:
- to identify national special rules early on
- to align the group guidelines in such a way that these rules do not come as a surprise only during a tax audit,
- To make internal coordination between the tax department, controlling and operational units more targeted.
4. Role of the UN Manual in transfer pricing matters with third countries
The UN Manual can play a dual role in assessing transfer pricing issues with third countries: as Framework for your own tax strategy and as a Guidance on the interpretation of the behavior of local tax authorities.
4.1 Framework for the internal transfer pricing policy
Companies can strategically use the UN Manual to make their transfer pricing policies more robust against audits in third countries:
- Alignment of corporate guidelines with the recommendations of the manual
Check whether and where corporate guidelines (e.g., function definitions, choice of methods, predefined margins) are consistent with the approaches presented in the manual or exhibit areas of conflict. - Identification of typical conflict areas
The manual helps to identify situations in which third countries are particularly sensitive (e.g., intra-group services with difficult-to-prove benefits, IP structures, financing). The documentation can be further explored in detail for these areas. - Design of Local Files with a view to third-country perspectives
While many Local Files are primarily tailored to OECD requirements, it may be useful to adapt individual parts – such as the description of local value creation or substance – to the expectations outlined in the UN Manual.
4.2 Interpretation aid in tax audits
In tax audits involving third countries, the UN Manual can serve as a "translator":
- Understanding the lines of argumentation of the tax authorities
When examiners focus particularly on certain aspects, this can often be explained by the priorities outlined in the manual. This facilitates preparation for discussions and the structuring of statements. - Demonstrating internationally recognized principles to local authorities
Conversely, companies can – with due restraint – refer to specific passages in the UN Manual that support their own approach. Since the Manual is endorsed by the United Nations, it also carries some weight as a reference point in non-OECD countries. - Support in mediation processes and conflict resolution
In cross-border coordination processes (such as mutual agreement procedures between states), the manual can play a mediating role because it attempts to reconcile the OECD methodology with the needs of developing and emerging economies. Companies that structure their arguments in a way that is both OECD-compliant and UN-compatible tend to increase their chances of reaching a consensus-based solution.
4.3 Risk assessment and prioritization
Finally, the UN Manual can help to prioritize risks systematically:
- Identification of countries where the manual is particularly relevant
In countries that explicitly use or orient themselves towards the manual, there is a high probability that the key areas described therein will become examination reality. - Classification of differing national regulations
Where national approaches deviate from the OECD logic, the manual provides a better understanding of whether these deviations lie within the spectrum shown therein or should be seen as a special case. - Derivation of recommendations for action regarding governance and compliance
This can lead to concrete measures, such as:- supplementary training for local finance and tax departments,
- Adjustment of transfer pricing agreements,
- Early involvement of external consultants in particularly exposed jurisdictions.
5. Conclusion: A complementary instrument for a robust, internationally compatible transfer pricing strategy
The UN Manual does not compete with the OECD Transfer Pricing Guidelines, but rather complements them with a more practical perspective, more strongly focused on the needs of emerging and developing countries. For corporate groups with activities in third countries, the Manual offers clear added value:
- It makes it understandable how tax authorities outside the classic OECD environment review transfer prices.
- It demonstrates pragmatic solutions when data is limited and resources are restricted.
- It helps to better understand national characteristics and integrate them into corporate guidelines.
- It supports preparation for tax audits and mutual agreement procedures with third countries.
In practice, this means that the OECD Transfer Pricing Guidelines remain the central reference framework, particularly in the EU and in traditional industrialized countries. However, the UN Manual is an important supplementary tool for aligning transfer pricing structures and documentation to meet the expectations and audit approaches of third countries. Keeping both perspectives – OECD and UN – in mind reduces the risks of double taxation, disputes with tax authorities, and unplanned tax reassessments, and strengthens the company's overall transfer pricing compliance.
