The 2022 OECD Transfer Pricing Guidelines (Chapter II, paragraphs 2.18–2.26) state that, for the transfer of commodities between associated enterprises, the Comparable Uncontrolled Price (CUP) method is generally the most appropriate method. The Guidelines define “commodities” as physical products for which there is a quoted price that independent parties in the industry routinely use as a reference for setting prices in arm’s-length transactions—ranging from grains and metals to hydrocarbons.
Under the CUP method, the arm’s-length price can be determined by reference to comparable arm’s-length transactions or to comparable arrangements represented by the quoted price. The Guidelines emphasize a key technical element: the quoted price must reflect the agreement between independent buyers and sellers in the market for a specific type and quantity of the commodity, traded under specific conditions and at a specific time.
The detail that makes all the difference: the pricing date
One of the most frequently cited points in the 2022 Guidance is that the pricing date is a particularly relevant factor when using the quoted price as a reference. The Guide also acknowledges that adjustments may be required when there are differences between the controlled and uncontrolled transactions—for example, if the price of the controlled sale includes freight and the uncontrolled sale was agreed upon under FOB terms. If a reasonably accurate adjustment cannot be made, the reliability of the CUP method is reduced, and it may be necessary to resort to a less direct method.
Why Several Latin American Countries Did Not Adhere to the OECD Standard
Here is the point that makes this issue particularly relevant to the region: Several Latin American countries have incorporated specific rules for commodity transactions, inspired by the use of quoted prices and, in some cases, by mechanisms known as the “Sixth Method”—a regional extension of the OECD standard designed specifically for exports of raw materials conducted through intermediaries located in low-tax jurisdictions. The rationale behind this regional rule is to close a loophole identified by Latin American tax authorities: structures in which a local producer sells to a related trader in a country with low or no taxation, and that trader resells to an independent end buyer, capturing part of the margin outside the producing country.
This makes Latin America one of the regions with the highest documented level of Transfer Pricing litigation involving raw materials—along with Ukraine, Russia, and other major commodity exporters—and explains why Argentina, in particular, has a significant number of administrative and judicial cases on this matter.
Checklist of Recommendations
- Verify whether the exporting jurisdiction applies the “sixth method” (or its local equivalent) to transactions with related intermediaries abroad.
- Document the source of the quoted price used (commodity exchange, price reporting agency) and its routine use in the industry.
- Accurately record the contractually agreed-upon pricing date and compare it to market practice.
- Support any adjustments for differences in freight, quality, or delivery terms (FOB vs. delivered) with quantifiable evidence.
- Assess whether, in the absence of reliable comparables, it is appropriate to switch to an alternative method (TNMM or another) rather than forcing a CUP that is difficult to defend.
At TPC Group, we assist raw material exporters throughout Latin America in structuring and documenting their intercompany transactions in accordance with the OECD’s arm’s-length standard and the specific regulatory requirements of each jurisdiction in the region.
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