People who see my Eide Bailly bio or LinkedIn profile often have the same reaction: how does an educational background in history, political science, and international development economics lead to a career in transfer pricing? As it turns out, my trajectory is not uncommon for a transfer pricing professional and hints at one of the most fascinating parts of the job: its close connection with world affairs and geopolitics. Below are a just few examples of the many ways transfer pricing is part of global economic and political trends and events.
Tax Base Protection and Sovereignty
Countries and their tax authorities view transfer pricing rules as a way to protect their tax base from profit shifting by multinationals. Governments often use transfer pricing enforcement as part of asserting economic sovereignty—ensuring foreign companies pay their “fair share” based on the value they derive from operating in the country. Disputes arise when countries with conflicting interests both claim taxing rights over the same profits. This risk of double taxation is the impetus for hundreds of bilateral and multilateral treaties around the world.
Geopolitical Competition over Investment
Countries may strategically adopt favorable tax and transfer pricing regimes (e.g., simplified rules, safe harbors, lower penalties) to attract multinational headquarters or regional operations. Others use stricter enforcement, especially against foreign multinationals, as a way to protect domestic firms or as leverage in negotiations.
Trade and Diplomatic Disputes
Transfer pricing disputes sometimes spill over into trade and diplomatic relations. For example, the US and EU clashed over state aid cases involving tax rulings for tech companies. Likewise, India, Brazil, and China have had high-profile disputes with multinationals that escalated into broader trade conflagrations.
Transfer pricing can be a tool of economic statecraft. A prime example is US tariff policy, where transfer pricing is both a planning opportunity for mitigating tariff costs and a means for tax administrations to retaliate against such other countries' policies.
Sanctions, Supply Chains, and Transfer Pricing
In a world where economic sanctions are heavily applied in a geopolitical and strategic context (e.g. those currently levied against Russia, Iran, and North Korea), transfer pricing takes on an additional geopolitical risk: multinationals must navigate establishing and pricing relationships between affiliates while avoiding violating sanctions or appearing to support adversarial regimes.
Geopolitical shocks may also force companies to reconfigure supply chains, which directly impacts intercompany pricing policies.
Soft Power and Standard Setting
Control over international tax standards is itself a geopolitical battleground. Countries and multilateral organizations that set the rules gain soft power by shaping how global income and capital is allocated and taxed. This point has recently been on full display in the negotiations and disputes surrounding the OECD's BEPS Pillars One and Two initiatives allocating global taxation rights and setting a global minimum tax.
The Big Picture
Transfer pricing sits at the contentious junction of tax, supply chain, and economic regulation, and trade strategy, making it a handy tool for governments and authorities in negotiations and disputes. To succeed in this treacherous world, taxpayers will find that some history, political science, and international economics is useful indeed.
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