The concept of associated persons as a key and potentially problematic aspect in transfer pricing

Abstract

Transfer pricing (TP) is based on many principles – the essential one is the Arm´s Length Principle (ALP). In this respect, the term “associated persons” is of crucial importance: associated persons must be involved in transactions in order for the ALP to be applied. The aim of the paper is to contribute to existing comparative analysis of TP rules – specifically, to provide a critical analysis of the term “associated persons” as prescribed by domestic law in Brazil, the Czech Republic, and Latvia. The key goals of the research conducted were to provide a comprehensive picture of the variety of definitions, to indicate relationships between international law and domestic law, and last, but not least, to highlight various concepts of the term “associated persons” and to identify problematic aspects connected with the interpretation of the definitions and the applications of the related rules. The study, which is based on qualitative research, is exploratory and interpretative in its nature. Its results present a background for further research and point to the fragmentation of law on TP with respect to the investigated issue. On the basis of the results of the comparative study one can conclude significant differences among, and fragmentation in, the definitions of the term “associated persons” both in respect of the number of categories established and in respect of the absence of the autonomy of the definitions of the term “associated persons” as provided by public law (especially by income tax acts). At the same time one can conclude the same position regarding the application of double tax treaties in all the countries for which the study was carried out.