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Intragroup transactions and the arm's length principle

Applies
FY2024 onwards
Reviewed
Rule
P2-ALP-2024.1
By

Do Pillar Two calculations follow transfer pricing?

Cross-border intragroup transactions must match on both sides and be at arm's length. The local tax price is used unless a tax authority adjusted it.

Per GloBE Model Rules (Pillar Two), December 2021, Article 3.2.3, arm's length requirement

Any transaction between Constituent Entities located in different jurisdictions that is not recorded in the same amount in the financial accounts of both Constituent Entities, or that is not consistent with the Arm's Length Principle, must be adjusted so as to be in the same amount and consistent with the Arm's Length Principle. A loss from a sale or other transfer of an asset between two Constituent Entities located in the same jurisdiction that is not recorded consistently with the Arm's Length Principle is recomputed based on that principle if the loss is included in the computation of GloBE Income or Loss. Under the Commentary, the price used to compute local taxable income is used where no tax authority has adjusted it; and a unilateral transfer pricing adjustment gives a corresponding adjustment for all counterparties unless it changes taxable income in a jurisdiction with a nominal tax rate below the Minimum Rate or that was a Low-Tax Jurisdiction in each of the two preceding Fiscal Years.

It keeps the same income from being counted in two jurisdictions or in none. It decides whether an adjustment is made; the arm's length price itself is a transfer pricing question and no figure is produced.

Most transactions need no adjustment

Cross-border — three positions

  • The accounts price is the price used for local tax and no authority has adjusted it: NO ADJUSTMENT
  • All relevant tax authorities agree the same price, as under a bilateral Advance Pricing Agreement: every counterparty ADJUSTS to it
  • The price used for tax differs in one jurisdiction only — a unilateral APA, a self-assessed adjustment, or a challenge by one authority: see below

A unilateral adjustment

The price used for tax is presumed arm's length and all counterparties make a corresponding adjustment — unless the adjustment increases or decreases taxable income in an under-taxed jurisdiction: one with a nominal tax rate below the Minimum Rate, or one that was a Low-Tax Jurisdiction for the MNE Group in each of the two preceding Fiscal Years. There it is not reflected, because reflecting it would itself produce double taxation or double non-taxation.

Same jurisdiction

Jurisdictional blending cancels most domestic mispricing, so only a loss on a sale or transfer of an asset, not at arm's length and included in GloBE Income or Loss, is recomputed. A loss eliminated under an Article 3.2.8 consolidation election is left alone.

Entities computed separately

A transaction with a Minority-Owned Constituent Entity or an Investment Entity in the same jurisdiction must be at arm's length: their Effective Tax Rate is computed separately and nothing cancels.

Always

The transaction is recorded in the same amount by both parties. The article requires the same price, not the same timing. It applies to transactions in the Transition Year and later; the acquirer of an asset takes a GloBE carrying value at the arm's length price.

Order of testing

  1. 1

    Inputs requiring your determination

    Every input the computation reaches must be supplied; nil is entered, not left blank.

  2. 2

    The price used to compute local taxable income

    Unadjusted, it is used and no adjustment is made.

  3. 3

    A price agreed by all relevant tax authorities

    Every counterparty adjusts to it.

  4. 4

    A unilateral adjustment in an under-taxed jurisdiction

    Nominal rate below the Minimum Rate, or low-taxed in both preceding years: not reflected.

  5. 5

    A unilateral adjustment outside an under-taxed jurisdiction

    All counterparties make a corresponding adjustment.

  6. 6

    A loss on an asset transfer within one jurisdiction

    Recomputed if not at arm's length and included in GloBE Income or Loss.

  7. 7

    A party whose Effective Tax Rate is computed separately

    Arm's length is required.

Examples

Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.

A transfer pricing policy nobody has challenged

Cross-border services priced under the group's policy and filed on that basis in both jurisdictions.

Computed

No adjustment is made under Article 3.2.3 as computed: the price in the financial accounts is the price used to compute local taxable income, and no relevant tax authority requires a transfer pricing adjustment, so that price is used in computing GloBE Income or Loss (Commentary to Article 3.2.3, paragraph 97). The transaction must in any case be recorded in the same amount by both Constituent Entities. Based on what you supplied.

Decided by the price used to compute local taxable income

An audit adjustment in a high-tax jurisdiction

One tax authority, in a jurisdiction with a 25% rate, increases the price in a filed return.

Computed

All counterparties make a corresponding adjustment to GloBE Income or Loss as computed (Article 3.2.3): the price used for tax differs in one jurisdiction and is presumed consistent with the Arm's Length Principle, and that jurisdiction has a nominal rate of 25%, not below the Minimum Rate of 15%, and was not a Low-Tax Jurisdiction in each of the two preceding Fiscal Years (Commentary to Article 3.2.3, paragraph 101). The article requires the same arm's length price, not the same timing. The amount is a transfer pricing determination and is not computed here. Based on what you supplied.

Decided by the a unilateral adjustment outside an under-taxed jurisdiction

A unilateral adjustment in a 9% jurisdiction

The same kind of adjustment where the nominal rate is below the Minimum Rate.

Computed

The unilateral transfer pricing adjustment is not reflected in GloBE Income or Loss as computed: it changes taxable income in a jurisdiction whose nominal tax rate of 9% is below the Minimum Rate of 15%, and reflecting it would give rise to double taxation or double non-taxation under the GloBE Rules (Commentary to Article 3.2.3, paragraphs 101 and 103). Based on what you supplied.

Decided by the a unilateral adjustment in an under-taxed jurisdiction

A domestic asset sale at a loss

A sale between two entities in one jurisdiction below market value, the loss included in GloBE Income.

Computed

The loss must be recomputed based on the Arm's Length Principle as computed (Article 3.2.3): it arises on a sale or other transfer of an asset between Constituent Entities in the same jurisdiction, is not recorded at arm's length, and is included in GloBE Income or Loss. The acquiring entity takes a GloBE carrying value at the arm's length price. The amount is a transfer pricing determination and is not computed here. Based on what you supplied.

Decided by the a loss on an asset transfer within one jurisdiction

Try it

Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.

Not computed yet

1 input still need your determination:

  • Are the Constituent Entities that are parties to the transaction located in the same jurisdiction?

Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.

Thresholds

pillar_two.minimum_rate
15% · reviewed 2026-10-04 · source

Threshold values are published separately from the rule and carried with a citation. Where none has been published for the period being computed, the rule reports that rather than applying a default.

Sources

Share this rule

Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader