UN Guidelines for the pharmaceutical and agricultural sector

published on 5 November 2024 | reading time approx. 2 minutes

The United Nations Committee of Experts on International Cooperation in Tax Matters has published two guidelines on transfer pricing: one for the pharmaceutical sector (Guidance on Transfer Pricing in the Pharmaceutical Industry, published on 18 September 2024) and one for agricultural products (Guidance on Transfer Pricing of Agricultural Products, published on 23 September 2024).

These publications aim to provide practical advice on transfer pricing to tax authorities – especially those with limited resources v and multinational companies. The selected topics are part of a package of publications whose contents have been chosen for their practical relevance and importance for economic development.

Pharmaceutical sector

The guideline for the pharmaceutical sector provides a comprehensive overview of the industry with key considerations for transfer pricing. It describes the main stages of the global value chain of multinational companies in the pharmaceutical industry (R&D, manufacturing, marketing, distribution and regulatory affairs) and identifies the main global value drivers of the sector (R&D and patents, marketing intangibles, marketing authorization, know-how and digitalization). This industry is characterized by a high intensity of knowledge as it relies heavily on expertise and innovation.

The main insights on transfer pricing focus on the classification of transactions, considering the specific features of the industry. The guideline ends with a section on functional analysis and practical examples. It is expected that Annex 3 of the document will be published soon and will contain a list of potential questions that could be used in tax audits related to transfer pricing in the pharmaceutical industry.

Agricultural products

The guideline for Agricultural Products analyses the global value chain and key trade drivers for multinational companies operating in this sector. After an initial analysis of the delineation of transactions and the main comparability factors, the guideline emphasizes the application of the CUP (Comparable Uncontrolled Price) method and the TNMM (Transactional Net Margin Method).

Subsequently, two strategic aspects for multinational companies in the agricultural sector are analyzed with a focus on transfer pricing. The first relates to the centralization of purchasing functions to ensure a more efficient management of the supply chain and reduce the negative impact of natural events or macroeconomic shocks on the group's global supply. The second refers to the use of hedging instruments, both physical and financial, to reduce the risks associated with commodity price volatility.

In the second part, the document focuses on analyzing two specific agricultural industries: coffee and soy. Both have been used as references to provide guidance applicable to other products within the sector as well.

Annex 4 of the guideline contains a list of potential questions that could be used in the context of tax audits concerning transfer pricing in the agricultural products sector.

The two guidelines described in this article provide practical suggestions and concrete guidance for defining, analyzing, and documenting the transfer pricing system of multinational groups operating in the covered sectors, as well as clarifications and possible arguments that may be useful during tax audits.