Transfer Pricing: Challenges and Solutions Within the ASEAN Regime

Transfer pricing has recently gained a prominent highlight in ASEAN countries. Eventhough transfer pricing policy has already been enacted by most of each ASEAN member states, there still exists loopholes – especially involving the transactions of cross border transfer prices. This research paper will discuss and further scrutinize the legal issues constituted by these loopholes, which affect both member states and Multi National Enterprises (“MNEs”) - particularly those associated with deficit tax revenue suffered by the member states, as a result of transfer pricing manipulations conducted by the MNEs. Transfer pricing concealed in the form of crossborder transactions; including but not limited to acquisitions, joint venture, and supply chains - impedes the movement of trade and capital, even catalyzes a tax distortion. Aside from ASEAN member states, MNEs are also being put at a disadvantage – to be subjected to a much greater burden on paying a higher cost of compliance, due to its responsibility to comply with more than one country's jurisdiction and to have them imposed towards a susceptible double taxation.The result of this study encourages and essentially demonstrates the necessity of ASEAN to leverage a firm legal framework on transfer pricing that emphasizes on the manifestation of ‘arm's length principle' in all ASEAN countries' jurisdictions.


I. INTRODUCTION
The globalized business world has affected the international regime LQ YDULRXV DVSHFWV PDLQO\ LQ WKH ¿HOG RI LQWHUQDWLRQDO WUDGH 1RZDGD\V had the trade barrier been removed and tarriff been prohibited -the volumes of international global transfer of goods and services, movement of capitals, also intagible assets and services has been increasing tremendously. In order to catch up with the global movement, with the help of rapid and expeditious advances in technology, logistics, and transportation -has given rise to a large number of Multi National En-WHUSULVHV 01(V KDYLQJ WKHP SRVVHVV WKH ÀH[LELOLW\ WR H[SDQG WKHLU business by establishing subsidiaries and branches outside the parent's company jurisdiction. The existence of such subsidiaries and branches has successfully facilitated the conduct of cross-border intra-group transactions. Those transactions between such related parties, namely DQ DVVRFLDWHG HQWHUSULVH ± HQWHUSULVH WKDW GLUHFWO\ RU LQGLUHFWO\ FRQWURO or being controlled in the management, control or capital, 1 in which one party one-sidedly control the price; either determining the price lower WKDQ WKH PDUNHW SULFH DQG WKXV VKLIWLQJ WKH SUR¿W JDLQHG WR D ORZHU tax jurisdiction; has caused a dissentment between both the MNEs and the government's involved between the transaction, mainly its national tax authority. However, such issues should be addressed not only in a 'water edge' isolation 3 , but towards a broad international context as a whole. This matter, thus, has become a prominent highlight and been brought up to be a huge issue to the world of international tax law, QDPHO\ WUDQVIHU SULFLQJ 7KHVH WUDQVIHU SULFHV SOD\ D KXJH VLJQL¿FDQW role for MNEs and tax authoity as they determine the large part in the LQFRPH DQG H[SHQVHV DQG WKXV WD[DEOH SUR¿WV RI WKRVH DVVRFLDWHG HQWHUprises, especially in different tax jurisdiction. 4 This paper helps to underline the underlying issues of transfer pricing, experienced and faced by both MNEs and government on the matter of taxation on the business revenues. First, this paper will discuss about the transfer pricing conduct from MNEs and government's perspective along with the legal loopholes dealt by both MNEs and government. Then, a brief case study along with the concrete examples of transfer pricing in the business world are outlined. Further, the rules applied for transfer pricing, as being practiced by United Nations (UN), Organisation of Economic and Development (OECD) member countries, and also European Union (EU) will also be reviewed. To conclude this paper, an alternate solution for the transfer pricing issues in ASEAN are also being discussed.
The legal loopholes and evasion caused by transfer pricing, also the non-existence of such binding regulations on the transfer pricing has piqued the interest of the author to conduct further research on this mat-WHU ± DOVR EHOLHYHV WKLV SDSHU ZRXOG EHFRPH D OHJDO SUREOHP VROYHU WR the problems or loopholes which may arise in the near future and may EHQH¿W WKH LQWHUQDWLRQDO FRPPXQLW\ DV D ZKROH

II. GROUNDS OF TRANSFER PRICING CONDUCT: IN A NUT-SHELL
As stated above, while MNEs establish their subsidiaries and branches outside their parents' company jurisdiction, it accommodates their needs to move their assets while also to conduct several transactions, mainly from the MNE's parent company to its subsidiary VR FDOOHG DQ LQWUD¿UP WUDQVDFWLRQ 7KRVH LQWUD¿UP WUDQVDFWLRQV DUH charged on whether they are following the market prices, or reaching a price consensus of their own, which are usually cost based -neglecting the market value. In such situation, it become\s necessary for MNEs to determine the price among themselves, so called a 'transfer price'. Transfer prices on such transactions are usually decided from both market and group driven forces which may be differ from the open market conditions operating between the independent entities. Therefore, such transactions are not only controlled by market forces, however, also by the driven forces of the common interest of the related parties, such as associated enterprises which form a part of MNE group. To sum up, there are both internal and external grounds and reasons for on the set up of transfer pricing within the intragroup trade in goods, service, and intangibles assets. Followings are the MNEs and tax authority's view on transfer pricing.

III. MNES' MOTIVATIONS FOR TRANSFER PRICING
First, the nature of MNEs is an integrated business group which FRQVLVW RI DVVRFLDWHG DI¿OLDWHV LQ RWKHU FRXQWULHV XQGHU FRPPRQ FRQtrol, with common goals, and sharing a common pool of resources. 6 Theoretically, MNEs are only subjected to domestic law of the different states in which they operate in 7  GHSHQG RQ WKHLU DI¿OLDWHV ¶ SUR¿W In this case, it is internally driven that the setting of transfer price within the intra-group transactions is to in-FUHDVH WKH RYHUDOO HI¿FLHQF\ ZLWKLQ WKH ¿UP DQG PRQLWRU WKH SHUIRUmance of one's entity within the MNEs group, especially on determin-LQJ WKH SUR¿WDELOLW\ DQG LQFRPH RI HQWLWLHV LQYROYHG LQ WKH WUDQVDFWLRQV Externally, MNEs' main purpose on conducting transfer pricing is to optimize the tax arrangement 9 .and minimize the taxes paid. By conducting transfer pricing, MNE as a whole, paid a lower tax rate due to WKH SUR¿W VKLIWLQJ LQ WKH ORZHU WD[ MXULVGLFWLRQ DQG FRQVHTXHQWO\ KDYLQJ the tax liability of the relevant company distorted in consequent. 10 Also, WKH SUR¿W JDLQHG E\ 01( LV PXFK KLJKHU DV WKH WUDQVIHU SULFH LV GHSHQG-LQJ RQ WKH SULFH DW ZKLFK WKH LQWUD¿UP WUDQVDFWLRQ WDNHV SODFH +RZHYHU still, they are amounted to double taxation, in which they are obliged to pay corporate income taxes for both domestic and foreign source income as they conduct a transfer pricing on the cross-border transaction.

IV. TAX AUTHORITIES/GOVERNMENT'S VIEW ON TRANS-FER PRICING
Unlike MNEs who view transfer pricing as a media to internally monitor their management, meanwhile paying a reduced tax obliga-WLRQV WR WKH ZKROH RI 01(V JURXS WD[ DXWKRULW\ ± LQ FRQWUDVW DUH RQO\ interested in the revenue gained by MNE's local entity. Thus, the tax authority of the involved government has the right to tax the MNE's income within their jurisdiction. 11 However, Tax authority sees transfer pricing to be unpleasant since the government may lose their fair share of tax revenue. This is inevitably due to MNEs are paying less than they should be as their supposedly taxable revenue is being disproportion-DWHO\ DOORFDWHG WR WKH FRXQWULHV ZLWK ORZHU WD[ MXULVGLFWLRQ ± LQ ZKLFK DW the end, MNE as a whole, pay less tax than they are supposed to.

V. PROBLEMS GENERATED FROM TRANSFER PRICING MA-NIPULATION
The transfer pricing itself, is not illegal dan does not bring forth a tax avoidance. Only when the price set is not in accordance with interna-WLRQDO DSSOLFDEOH QRUPV RU GRPHVWLF ODZ ± VR FDOOHG D µWUDQVIHU PLVSULF-LQJ ¶ DQ LVVXH RI WD[ HYDVLRQ DQG SUR¿W VKLIWLQJ PD\ DULVH ,Q QDUURZHU aspect of tax administration, the problems on policy and practical level may arise. At the policy level, governments can exercise their rights WR WD[ WKH SUR¿WV RI WD[SD\HU EDVHG XSRQ WKH LQFRPH JHQHUDWHG ZLWKLQ WKHLU WHUULWRU\ ,Q SUDFWLFDO OHYHO LW LV GLI¿FXOW IRU WD[ DGPLQLVWUDWLRQ WR obtain the detailed and pertinent data from the transactions conducted by MNEs located outside their jurisdiction.
Although according to the abovementioned explanations transfer pricing seem innocuous, transfer pricing is bound to shape the tax base of the countries involved in the crossborder transaction, involving the MNEs and tax authorities. Transfer pricing is usually conducted and manipulated through moving the deductible expenses to the high taxes jurisdiction and shifting the revenues to the tax haven countries. Hence, without any consistent rules and administration, MNEs might be provided with an incentive to evade taxation through transfer pricing manipulation, which is an over or under-invoicing of related party transactions in order to avoid government regulations 13 DQG \HW ± WKH ZRUOG of international tax is left to deal with the upcoming legal loopholes, mainly concerning the jurisdictional matters, custom valuation, and al-ORFDWLRQ RI SUR¿W A. JURISDICTIONAL MATTERS Theoretically, MNEs are only subjected to domestic law of the different states in which they operate in 14 , but during transactions, MNEs must comply with the different from country to country's laws & regu-OECD 13 /RUUDLQH (GHQ 14 M. Sonarajah, The International Law on Foreign Investment (Third Edition), lations and administrative requirements. Differing requirements lead to the greater burden on MNE, resulting in higher cost of compliance than for a similar enterprise operating solely within the single tax jurisdictions. On the other hand, as MNEs are exposed to higher cost compliance to comply with more than one tax jurisdiction, the tax authority is also exposed to a similar degreee of problem due to the adjustments made to the transfer price in one tax jurisdiction that immediately affect the other corresponding jurisdiction.

B. DOUBLE TAXATION
Double taxation arises when two enterprises, as residents in differ-HQW VWDWHV DUH DVVHVVHG WD[ RQ WKH VDPH SUR¿W RU LQFRPH ZLWKRXW UHOLHI provided by either state for tax imposed by the other. The double taxa-WLRQ PD\ EH D UHVXOW RI QRQ DUP ¶V OHQJWK WUDQVDFWLRQV 7KH SUR¿WV RI RQH enterprise are adjusted upwards (mainly due to underpricing of sales and overpricing of transactions), increasing the tax charged on that enterprise in one state -known as a primary transfer pricing adjustment, without a corresponding reduction in tax payable of the associated enterprise in the other state. 16 However, problems arise if the other governments try to reconcile their rights to tax the income within their territory as a result of such cross-border transaction and thus, having one transaction to be taxed by more than one country's jurisdiction.This leaves the question on who has the right to tax the MNEs' income, given both governments have the same rights and which tax court shall continue on with the proceedings in case of dispute. Those issues arise due to MNEs being able to avoid the national reach of government regulations RQ WUDQVIHU SULFLQJ ± HQJDJLQJ LQ SUDFWLFH DQG EHLQJ HTXLSSHG ZLWK WRROV LQ RUGHU WR UHGXFH WKHLU RYHUDOO WD[DEOH SUR¿W

C. ALLOCATION
In most jurisdictions, the tax authority bears the burden of proof ± UHTXLULQJ WKHP WR HVWDEOLVK D SULPD IDFLH HYLGHQFH VKRZLQJ WKDW WKH MNE's pricing is inconsistent with the arms' length principle. From MNE's perspective, still, these resources shall be allocated where they 2(&' *XLGHOLQHV 3UHIDFH QR 16 Inland Revenue Department offer an overall advantage for MNE as a while, thus having MNEs mo-WLYDWHG WR VKLIW WKHLU SUR¿WV LQWR FRXQWULHV ZLWK ORZHU WD[ MXULVGLFWLRQ Those low tax jurisdictions (i.e tax havens) providee an intriguing offer for MNEs meanwhile creating tax competition between the nation states.
However, national trade and tax barriers impede such allocation and also raise the transactional and compliance cost for MNEs. It is also to be noted, even though common resources are a source of competitive advantage for members of the MNE, such resources are interdependent DQG WKXV PDNLQJ LW GLI¿FXOW WR GLVHQWDQJOH WKH 01( ¶V JOREDO LQFRPH for tax purpose.

D. VALUATION (CUSTOM VALUATION)
In practice, MNEs are unconsciously provided with a tool to utilize the intragroup transfer prices for custom purposes. The most sig-QL¿FDQW SUREOHPV DULVLQJ IURP WKLV DVSHFWV DUH KDYLQJ WR GHPRQVWUDWH the intercompany transfer prices to be an acceptable custom value and properly account for retroactive transfer pricing adjustment to value for customs purpose. 17 When goods are sold between related parties, the taxable pricing is also used for custom valuation purpose. While transfer pricing is mainly done by underpricing the intra-company sales and overpricing company purchase, the underinvoicing of intragroup sales LV WKH PDLQ WRRO WR UHGXFH WKH WD[ FRVW WKHUH FDXVH QR GH¿QLWH YDOXH RI VXFK JRRGV XSRQ WKH WD[DEOH SUR¿W

VI. ARMS' LENGTH PRINCIPLE ON TRANSFER PRICING PUR-POSE
Due to the aforementioned problems concerning transfer pricing, government nowadays are facing challenges on protecting their tax jurisdiction while not creating double taxation or uncertainties that would affect their foreign investment and movement of goods and service. Thus, the adoption of transfer pricing framework embodying the arms' 17 The Intersection of Transfer Pricing and Customs Valuation: Challenges (and opportunities) for Multinational Enterprises, Michael E. Murphy and Holly E, Max 3ODQFN (QF\FORSHGLDHD RI 3XEOLF ,QWHUQDWLRQDO /DZ S length principle will be the solution to achive such dual objectives.

A. THE ARMS' LENGTH STANDARD
Where transactions in goods and services move between associated enterprises across country borders it is necessary for companies to establish transfer prices with respect to those transactions. However, to comply with the prevailing transfer pricing regulations, those prices on such transactions must be made on an arms' length basis.
Under Article 9 of the OECD Model Tax Convention, arms' OHQJWK LV GH¿QHG DV D FRQGLWLRQ PDGH RU LPSRVHG LQ WKH XVH RU WUDQVIHU of intangibles between two associated enterprises differ from those that ZRXOG EH PDGH EHWZHHQ LQGHSHQGHQW HQWHUSULVHV WKHQ DQ\ SUR¿WV WKDW would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be includ-HG LQ WKH SUR¿WV RI WKDW HQWHUSULVH DQG WD[HG DFFRUGLQJO\ ,Q SUDFWLFDO approach, an entity would only acquire the goods or services from the associated enterprises with the purchase price equal to or below than the ones offered by the unrelated parties/suppliers. Conversely, the selling price to the associated enterprises shall be equal to or higher than the price paid by the unrelated parties/purchasers. Prices on this matter VKDOO JUDYLWDWH WRZDUGV WKH µDUPV ¶ OHQJWK SULQFLSOH ¶ ± LQ ZKLFK WKLV SULQciple requires two related parties to determine their transfer prices for an intra-group transaction in which two unrelated parties would have agreed with when those unrelated parties engage in similar transaction. It will then, to be generally recognized as prices on which two unrelated parties would agree to a transaction after bargaining in a competitive market.
Such principle set forth within the transfer pricing regulation as in accordance with OECD Transfer Pricing Guidelines might bring forth several tools for the government to face the transfer pricing challenges head on: In the practical approach, transfer pricing concealed in the crossborder transactions often constitutes a transfer price on the intangibles. What constitues as an intangible is something which is not a physical DVVHW RU D ¿QDQFLDO DVVHW DQG ZKLFK LV FDSDEOH RI EHLQJ RZQHG RU FRQtrolled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances. 19 Intangibles itself, by OECD, is EHLQJ OLPLWHG WR FRPPHUFLDO LQWDQJLEOHV ± LQWDQJLEOH SURSHUW\ DVVRFLDWed with commercial activities (e.g production of a good or provision of service, or even a business asset transferred to customers or used within the business operation). The term intangible property ecompasses the rights to use industrial assets such as patents, trademarks, designs, or models, even know-how, and trade secrets.

7KHUH DUH WZR FODVVL¿HG W\SHV RI LQWDQJLEOHV
1. Trade Intangibles (e.g patents, know-how, and technology intangibles created through investments in research and development) 0DUNHWLQJ ,QWDQJLEOHV H J WUDGHPDUN WUDGH QDPHV Previously, the arms' length guidance and transfer pricing method shall are generally used to determine the pricing for the tangible property. However, as stipulated in the Guidance on Transfer Pricing Aspects RI ,QWDQJLEOHV LW PLJKW EH GLI¿FXOW WR DSSO\ LQ WKH FDVH RI WUDQVDFWLRQV involving intangible property due to the complicated search for comparables and the uncertain values at times of transaction. Therefore, in the amendments of the guidance further elaborate that in order to determine the arms' length condition on the transfer of intangibles, it is 19 *XLGDQFH RQ 7UDQVIHU 3ULFLQJ $VSHFWV RI ,QWDQJLEOHV S OECD Transfer Pricing Guidelines, p. 191 ,ELG S important to take these followings into account : ,GHQWL¿FDWLRQ RI VSHFL¿F LQWDQJLEOHV /HJDO RZQHUVKLS RI LQWDQJLEOHV,GHQWLI\LQJ WKH OHJDO RZQHU RI LQWDQgibles based on the terms and conditions of legal arrangements: registrations, licence agreements, other relevant agreements. Then, the consistency between the conduct of the parties and the terms of the relevant legal arrangements regarding intangible ownership will be examined with a thorough functional analyses. 3. Contributions MNE group to their development and enhancementIdentifying the parties performing functions through assets used and risks assumed related to developing, enhancing, maintaining, protecting, and exploiting the intangibles by means of the functional analyses. 4. Nature of controlled transactions involving such intangiblesIdentifying the controlled transactions related to the development, enhancement, maintenance, protection, and exploitation of intangibles in light of the legal ownership of the intangibles under relevant registrations and contracts, and the conduct of the parties, including their relevant contributions of functions, assets, risks and other factors. 5HPXQHUDWLRQ YDOXH SDLG EHWZHHQ LQGHSHQGHQW SDUWLHV LQYROYLQJ LQtangibles (optional)The compensation that must be paid to members of the MNE group that contribute to the development, enhancement, maintenance, protection and exploitation of intangibles is generally determined on an ex ante basis (anticipated). However, the allocation of ex post (actual) remuneration will depend on the facts and circumstances of the case.
a. Who owns the intangibles?
The question on who owns the intangibles has been ringing through the practical approach since the old times. The ownership can be cat-HJRUL]HG WR DVSHFWV OHJDO DQG HFRQRPLF RZQHUVKLS 7KH OHJDO RZQHUship is the one that needs to be taken into account, as they can maximize their possession on the ownership to manipulate the transfer between legal entity. Often, the owner splits their economic and legal ownership LGHQWL¿FDtion and compensation of relevant functions performed, assets used, and risks assumed by all contributing members, provides the analytical framework for identifying arm's length prices and other conditions for transactions involving intangibles. Such analyses shall consider all of the relevant facts and circumstances present in a particular case and SULFH GHWHUPLQDWLRQV PXVW UHÀHFW WKH UHDOLVWLF DOWHUQDWLYHV RI WKH UHOevant group member, including the functions performed, assets used, and assumed risks.

C. ACCEPTABLE METHOD OF TRANSFER PRICING
)RU V \HDUV WKHUH KDV EHHQ D JURZLQJ XQLIRUPLW\ LQ WKH DFFHSWDEOH transfer pricing methods applied by the tax authorities in developed and emerging market economy. However, transfer pricing is a matter of facts and status quo, thus, each countries may have different method used by their tax authorities. Followings are the acceptable transfer Op cit,p. 43 pricing method used and applied by most countries across the globe.

Transactional Methods
Transaction-based method is used to calculate the transfer prices on the sales of tangible property (goods).

a. Product Comparable
Within the product comparable, a Comparable Uncontrolled Price (CUP) is often used. To calculate the transfer prices under the CUP, the price of transaction between MNE and the unrelated parties for the same product under the same circumstances are taken into account. Also, they shall consider the characteristic of the product, market loca-WLRQ WUDGH OHYHO RI WKH ¿UPV DQG ULVN LQYROYHG

b. Functional Comparable (Gross-margin Method)
The functional comparable method is an alternate when a product comparable is not available. This method concerns about the one side and narrower approach of the transaction, either the manufacturer or distributor and to calculate the price using functional approach. Followings are the two fuctional comparable method (and also considered as gross-margin methods) used to determine the transfer prices. 7KLV PHWKRG LPPHGLDWHO\ DOORFDWHV WKH SUR¿W WR WKH GLVWULEXWRU implicitly assuming the supplier is the manufacturers and thus, working best when the producer is simple manufacturer without complicated activities, having the cost and return to be more easily estimated.

3UR¿W EDVHG PHWKRG
Previous product comparable methods have proven themselves durable to withstand transfer pricing currents. However, product comparable still could not tackle the remaining problems of the lack of arms' OHQJWK FRPSDUDEOHV PDNLQJ &83 530 DQG & GLI¿FXOW WR XVH LQ SUDFtical approach, especially in the case of intangibles. This is due to the non-existent external market prices. To deal with this problem, transfers of intangibles shall be priced commensurate with those intangibles income (CWI Standard). In this CWI standard, the functional analysis and contemporary documentation of transfer pricing policies are required. )ROORZLQJV DUH WKH WZR SUR¿W EDVHG PHWKRGV DGGHG WR FRPSOHPHQW WKH transaction comparable method. Eden,p. 607 a. Transactional Net Margin Method (TNMM) TNMM is the method commonly used fot justifying the transfer SULFLQJ RI WKH FRPSDQ\ 7100 PHWKRG FRPSDUHV WKH QHW SUR¿W PDUJLQ earned by the arms' length party with the non-arms' length one s and use those net margin to go trace back the transfer price. TNMM searches for the comparable transactions and moves up for the other transactions for which datas can be found. In addition, a functional analysis of both the associated enterprise and the independent enterprise is required to determine if the transactions are comparable. It might of course be possible to adjust results for minor functional differences, provided that WKHUH LV VXI¿FLHQW FRPSDUDELOLW\ WR EHJLQ ZLWK 7KH VWDQGDUG RI FRPSDrability for application of TNMM is no less than that for the application of any other transfer pricing method.
To determine whether the price falls within the arms' length range, D QHW SUR¿W PDUJLQ GHULYHG IURP WKH SUR¿W OHYHO LQGLFDWRU ± UHWXUQ RQ assets and sales) of the tested party is to be compared with the interquartile range of the comparable parties, having those margin shall fall LQVLGH WKH LQWHUTXDUWLOH UDQJH ,I WKH FRPSDQ\ ¶V QHW SUR¿W PDUJLQ IDOOV outside the range, the tax authority will set the margin at the median range and solves backwards to determine the transfer price. The re-PDLQLQJ SUR¿W RI WKH WUDQVDFWLRQ LV WKHQ LV DVVLJQHG WR WKH FRPSDUDEOH parties, making the CPM a one-sided method as it focuses only the net >«@ 7UDQVIHU 3ULFLQJ 0HWKRGRORJLHV 2&(' JXLGHOLQHV 7UDQVDFWLRQDO QHW PDUJLQ method available at, KWWS ZZZ KPUF JRY XN PDQXDOV LQWPDQXDO LQWP KWP, DFFHVVHG 6HSWHPEHU 7UDQVIHU 3ULFLQJ 5XOHV DQG &RPSOLDQFH +DQGERRN 0DUF 0 /HYH\ 6WHYHQ C Wrappe, Kluwer Publishers. margins of the tested company.

VII.SOLUTION: CREATING A REGIONAL TRANSFER PRIC-ING REGIME
Transfer pricing issue on cross-border transaction, especially within WKH $6($1 5HJLPH KDV EHFRPH GLI¿FXOW WR GHDO ZLWK DV WKH\ LQYROYH more than one tax jurisdiction. Consequently, any adjustment to the transfer price in one tax jurisdiction immediately affect the other corresponding jurisdiction. Problems arise if, the corresponding jurisdiction GRHV QRW DJUHH ZLWK VXFK DGMXVWPHQW EHLQJ PDGH ± WKH\ ZLOO DOVR WD[ the MNE, thus amounting to a double taxation for a similar transaction. Thus, to overcome the issues of double taxation, a regional transfer SULFLQJ UHJLPH LV UHTXLUHG WR PRQLWRU WKH ÀRZ DQG WDFNOH XSFRPLQJ LVsues of cross-border transaction in ASEAN. Regional regimes are sets of functional and behavioral relationships among national governments that has been established in response to particular issues that has risen up to outside one country's jurisdiction ± LQ WKLV FDVH D WUDQVIHU SULFLQJ )RU H[DPSOH LQ WKH VLWXDWLRQV ZKHQ WKHUH DUH QR GH¿QLWH OHJDO IUDPHZRUN HVWDEOLVKLQJ WKH WUDQVIHU SULFLQJ policy within such regional, there will be incentives for governments or MNE to behave opportunistically and thus, setting up a regional regime will enhance the global welfare by providing rules of behavior, source of information, legal certainty, and formalizing the dispute settlement mechanisms; as it embodies principles, norms, rules, and procedures. Hence, is needed to manage interdependencies among nations.

A. TRANSFER PRICING AS STIPULATED UNDER THE REGIME OF EUROPEAN UNION (EU)
Generally, the EU could act as a pattern for ASEAN, primarily on WKH H[SHFWHG $6($1 (FRQRPLF &RPPXQLW\ LQ :KLOH (8 FRXQtries have already started to have themselves assembled into a regional block with internal market boundary by introducing the freedoms for (GHQ S Stephen Krasner, Structural Causes and Regime Consequences: Regimes as Intervening Variables' in Stephen Krasner, ,WKDFD &RUQHOO 8QLYHUVLW\ 3UHVV goods, service, and capital. These freedoms have impacted the member ccountries of EU towards a tremendeous economic growth in all regions, despite their economic segregration. 30

EU Arbitration Convention
In the transfer pricing section, to resolve disputes on transfer pricing which leads to double taxation, in 1990, EU Tax Committee es-WDEOLVKHG D OHJDO IUDPHZRUN WR WDFNOH VXFK XSZDUG DGMXVWPHQW RI SUR¿WV RI DQ HQWHUSULVH RI RQH PHPEHU VWDWHV ± 7KH (8 $UELWUDWLRQ &RQYHQWLRQ ("Convention"). This Convention possesses a binding nature towards all the contracting states on the goal of eliminating double taxation. As a result, this convention has improved the climate of crossborder transaction within the EU internal market.
EU Arbitration Convention provides that transactions between af-¿OLDWHG FRPSDQLHV VKRXOG EH LQ DFFRUGDQFH ZLWK WKH DUPV ¶ OHQJWK VWDQdard. Consequently, the tax authorities of the Member States can adjust WKH SUR¿W PDGH IURP WKH WUDQVDFWLRQV ZKHQ LW LV QRW DW DUPV ¶ OHQJWK $I-¿OLDWHG FRPSDQLHV DUH WR EH DVVXPHG DV LI WKH\ DUH ZKROO\ LQGHSHQGHQW from each other. EU Arbitration Convention also offers a solution to eliminate the FODVVLFDO SUREOHPV RI WUDQVIHU SULFLQJ ± GRXEOH WD[DWLRQ SUREOHPV $Fcording to the EU Arbitration Convention, one of the parties can request a mutual agreement procedure with the tax authorities of the Member 6WDWHV LI DQ XSZDUG DGMXVWPHQW RI SUR¿W LV EHLQJ PDGH E\ DQ HQWHUSULVH of the Member States. 31 Both Member States need to come up with a mutual agreement within two years or else an Advisory Commission will be established, as stipulated under article 11 of the Convention. The Advisory Commission will deliver its opinion within six months. After this the Member States can come to a mutual agreement which is different from the opinion, but they have to do this within six months. If they don't mutual agree within six months, the opinion of the Advisory Commission is binding. In accordance with the provisions set out in the &RQYHQWLRQ GRXEOH WD

(8 -RLQW 7UDQVIHU 3ULFLQJ )RUXP
While there is a binding convention, there shall be a jointly authority established in order to execute the provisions set out in the Convention. ,Q WKH (8 -RLQW 7UDQVIHU 3ULFLQJ )RUXP ³-73)´ ± FRPSULVHG RI EU member states and business representative (transfer pricing advisors and multinational's tax expert), was established with the goal of eliminating transfer mispricing throughout the EU. 33 The JTPF examined procedural issues related to the improvement of the practical functioning of the Convention. This included procedures to be followed during the interim period when not all Member States KDG UDWL¿HG WKH 3URORQJDWLRQ 3URWRFRO WKH VWDUWLQJ SRLQW RI WKH WKUHH year deadline for presentation of a case, the starting point of the two year mutual agreement procedure and proceedings during it, the proceedings during the arbitration phase and the interaction of procedures under the Convention with administrative and judicial appeals. The JTPF concluded that the optimal way to improve the practical functioning of the Convention and to deal with the various issues of it and the recommendations for those issues, was to propose a Code of Conduct with rules for the effective implementation of the Convention. 34 JTPF also examined existing rules in Member States for suspension of tax collection during administrative and judicial appeals. It came to the conclusion that in almost all countries this is regulated for domestic procedures at legal level. There is no formal legislation on Transfer Pricing. Any intragroup cross-border transactions between the residents and foreign entities has to be conducted within the arm-length reach.

Cambodia
No. It is only generally accepted that any intragroup cross-border transaction has to be within the arm-length reach.

1R VSHFL¿F QDWLRQDO OHJLVODWLRQ RQ 7UDQVIHU 3ULFLQJ
The tax authority has the rights to authorize and redetermine the related party transactions in order to impose pricing that arms' length parties would have contracted for in the transactions. 1250/QD-BTC The tax authorities has the authority to adjust the transfer price with respect to non arms' length related party transactions and taxpayer to comply with the TP requirement. The regulations are generally based on the OECD Guidelines. Circular 66 permits the use of the following methods: &83 5HVDOH 3ULFH &RVW 3OXV 7100 DQG 3UR¿W 6SOLW Taxpayers must use the most appropriate method under the regulations. There is no hierarchy among the methods, although recent practice shows that the Vietnam tax authority has a growing preference for the CUP method.

VIII. CONCLUSION
Having seen the varied income tax rates and numerous transfer pricing regulation in each ASEAN Member states in which such situation may offer the increased risk of setting up a non arms' length trans-IHU SULFH DQG SUR¿W VKLIWLQJ ±WKH DXWKRU VXJJHVWV LW LV DGYLVLEOH WR FUHate a regional transfer pricing regime within the ASEAN jurisdiction. In a nutshell, the transfer pricing regulations shall govern the norms, standard, and transfer pricing policies in practical business approach ZKLOH HPSKDVL]LQJ WKDW WKH WUDQVDFWLRQV EHWZHHQ DI¿OLDWHG FRPSDQLHV should be in accordance with the arms' length standard. This regulation may also adopt acceptable transfer pricing methods as set out in OECD Guidelines on Transfer Pricing, such as methods under transactional FRVW PHWKRG DQG SUR¿W EDVHG PHWKRG RQ GHWHUPLQLQJ WKH WUDQVIHU SULFHV 0RUHRYHU GHULYLQJ IURP WKH SUDFWLFH RI (XURSHDQ (XQLRQ DQ DI¿OLDWHG enterprise shall be considered an independent entity while subsidiaries still being regarded as parts of MNEs as a whole.