Transfer pricing (TP) remains a core focus of tax administrations globally, given its direct implications on profit allocation across jurisdictions. The post-BEPS era has ushered in a paradigm where economic substance, value creation, and transparency override formal structures. With tax authorities intensifying scrutiny on cross-border related-party transactions, recent transfer pricing assessments are offering deeper insights into how multinationals should structure, document, and defend their TP positions. This article explores emerging trends, persistent challenges, industry-specific insights, and global best practices grounded in real-time enforcement actions and regulatory developments.

Emerging Trends in Global Transfer Pricing Assessments

Substance over Contractual Form: The Rise of Economic Alignment

Tax authorities are applying a “substance-over-form” doctrine, disallowing tax positions that cannot be substantiated by functional analysis and actual conduct. Increasingly, intercompany contracts are being examined for their alignment with operational realities.

For example, in the case of a multinational with a central IP holding company in a low-tax jurisdiction, if DEMPE (Development, Enhancement, Maintenance, Protection, and Exploitation) functions are performed elsewhere, tax authorities may disregard the IP holder’s legal entitlement and reattribute income to the location of economic activity.

This trend is particularly relevant in sectors where cross-border portfolio or asset management can obscure true value creation.

Granular Focus on Intangibles and DEMPE Functions

The treatment of intangibles—especially marketing intangibles, customer lists, and technology—is evolving. Assessments have shown a keen interest in the economic contribution of local entities to brand development or R&D efforts. Tax authorities are now:

• Disputing royalty payments to entities lacking functional substance.
• Challenging the absence of compensation for local marketing functions that enhance brand value.
• Recharacterizing contract R&D centres as entrepreneurial contributors deserving residual profits.

This trend is further amplified in asset-intensive industries where functions like research, development, and investment decision-making occur in high-tax jurisdictions, but profits are shifted elsewhere.

Heightened Audit Activity Around Financial Transactions

Following the OECD’s 2020 transfer pricing guidance on financial transactions, regulators are scrutinizing intra-group loans, cash pooling arrangements, and guarantees. Key points under review include:

• Whether interest rates reflect arm’s length credit ratings and borrower capacity.
• Economic substance behind central treasury functions.
• Implicit support and guarantee fees being properly priced and reported.

This scrutiny extends to fund structures with intercompany financing elements—especially those involving hybrid entities or multiple-layer treasury models.

Strategic Risk Realignment and Intercompany Restructuring

Increased business restructurings post-pandemic has triggered tax authority interest in shifting of functions, assets, and risks. Authorities are now closely analysing business rationale, exit charges, and the allocation of post-restructuring returns.

Tax administrations are also assessing whether centralization of procurement, IP management, or finance functions results in a fair redistribution of risks and rewards in line with economic contributions.

Table: Summary of Key Transfer Pricing Trends and Jurisdictional Focus

This table provides a consolidated overview of emerging focus areas in global transfer pricing audits, highlighting typical audit targets and jurisdictions where enforcement is currently most active.

Persistent and Emerging Challenges in TP Enforcement

Complexities in Benchmarking and Comparability Analysis

Benchmarking remains a highly contested area in TP assessments. Challenges often stem from the selection of comparables, especially when tested entities operate in niche sectors or emerging markets. Key issues include:

• Reliance on outdated or foreign comparables when local data is unavailable.
• Inconsistent use of multi-year data versus single-year results.
• Disagreements on the application of working capital and risk adjustments.

Authorities increasingly prefer dynamic and local benchmarking, urging MNEs to periodically update their economic analyses to reflect market shifts, especially during periods of volatility or restructuring.

Scrutiny of Intra-group Services

Tax authorities are closely examining service transactions to ensure they meet the arm’s length standard and pass the benefit test. Key concerns raised include:

• Lack of documentation detailing the nature and benefit of services.
• Charges for duplicative or shareholder activities.
• Disputes over mark-ups applied to low-value or routine support services.

To counter these challenges, businesses must maintain detailed intercompany agreements, time-logging reports, and contemporaneous documentation of services rendered and received.

Financial Transactions and Arm’s Length Pricing

Intra-group financial transactions—such as intercompany loans, guarantees, and cash pooling—are under intense scrutiny. Common disputes arise from:

• Use of unsupported or internal interest rates.
• Absence of third-party credit rating simulations.
• Improper treatment of implicit guarantees and support functions.

Taxpayers are expected to adopt robust transfer pricing documentation for each financial instrument, supported by external data and economic rationale.

Functional Recharacterization and Risk Allocation

Where contractual terms are inconsistent with actual conduct, tax authorities may recharacterize the transaction. This often leads to reassessment of profits based on the true control of key business risks.

• Contract R&D service providers may be deemed risk-bearing developers.
• Marketing support functions may be treated as creators of local intangibles.

Proper delineation of controlled transactions is therefore essential to prevent misclassification and adjustments.

Disputes from Unilateral Adjustments and Penalties

Taxpayers continue to face unilateral adjustments leading to double taxation, particularly in jurisdictions where dispute resolution mechanisms like MAPs are slow or underutilized.

Furthermore, penalties for non-compliance with documentation requirements—ranging from fines to secondary adjustments—add an additional layer of financial risk.

To mitigate these issues, companies are advised to seek advance pricing agreements or proactively engage in bilateral dispute resolution frameworks.

Best Practices for MNEs to Future-Proof Transfer Pricing

Strengthening TP Governance Structures

Organizations should establish cross-functional TP governance involving tax, finance, legal, and operations teams. Elements include:

• Centralized TP policy design.
• Periodic global risk reviews.
• Audit readiness and simulation exercises.
• Training for local finance teams on TP documentation.

Leveraging Technology for TP Documentation

Technology can automate and enhance TP compliance by:

• Integrating ERP with TP modules for real-time monitoring.
• Using AI to identify discrepancies in intercompany transactions.
• Automating benchmarking, data updates, and adjustment calculations.

Real-time TP Monitoring and Analytics

Static TP models are ineffective in volatile economic environments. Dynamic TP monitoring enables timely adjustments to:

• Profit splits due to economic downturns.
• Market-based pricing volatility.
• Exchange rate fluctuations or inflation adjustments.

Companies should establish KPIs and dashboards to monitor performance vis-à-vis benchmarks and proactively identify variances.

Embedding ESG into TP Policies

As sustainability becomes central to business strategy, companies must reflect ESG-driven decisions—such as green supply chain investments or carbon tax exposures—into their TP analyses. This includes:

• TP treatment of carbon credits.
• Allocating costs of ESG compliance or innovations.
• Adjusting margins for sustainable product lines.

Future Outlook and Strategic Recommendations

Prepare for BEPS 2.0 Framework Implementation

The implementation of OECD Pillar One and Pillar Two frameworks is expected to reshape the global TP landscape. MNEs should:

• Evaluate exposure to reallocation of profits under Pillar One.
• Prepare for the 15% global minimum tax under Pillar Two.
• Reassess IP holding structures and intercompany financing models.

Enhance Audit Preparedness with Scenario Planning

Global enforcement trends suggest that audit preparedness is no longer optional. Scenario planning—stress-testing the TP model under various regulatory challenges—can build resilience and reduce surprises during assessments.

Align TP Strategy with Value Chain Transformations

As businesses evolve their global supply chains—through digitization, nearshoring, or strategic outsourcing—TP models must be updated to reflect:

• Changing risk profiles.
• Altered functions and asset contributions.
• Impact of geopolitical factors and trade regulations.

Conclusion

Transfer pricing enforcement is no longer centered on formal structures—it is now driven by transparency, economic substance, and strategic alignment with business realities. Recent assessments have shown that regulators are more assertive, data-driven, and collaborative than ever before. MNEs that treat transfer pricing as an integrated strategic function—rather than a compliance exercise—stand to build defensible, efficient, and future-ready tax structures.

By incorporating best practices such as robust governance, digital tools, real-time analytics, and proactive risk management, businesses can navigate the evolving transfer pricing landscape with confidence and resilience.