Plain English
Transfer pricing rules only bite when the two sides of a transaction are connected. That connection is usually ownership, but it can also be control in substance — a single customer who dictates your pricing and staffing may be treated as connected in some jurisdictions.
Technical definition
Article 9(1)(a) and (b) of the OECD Model define association by participation, directly or indirectly, in the management, control or capital of an enterprise, including where the same persons so participate in both enterprises.
Why it matters
It sets the perimeter of the rules. Get the perimeter wrong and you either document transactions that were never in scope, or miss transactions that were.
How it works in practice
- 01Map the legal ownership chain and shareholding percentages.
- 02Apply the local ownership threshold, commonly 25% or 50%.
- 03Test for de facto control: board composition, financing dependence, exclusive supply.
- 04Include permanent establishments and, in some regimes, transactions with low-tax jurisdictions regardless of ownership.
Worked example
Joint venture at 50/50
A JV owned equally by two unrelated multinationals is associated with both parents under most 50% thresholds. Sales from either parent to the JV are in scope, even though neither parent controls it alone.
Common mistakes
- Using group consolidation boundaries as the transfer pricing perimeter.
- Ignoring de facto control relationships with nominally independent parties.
- Missing head office to branch dealings, which follow separate attribution rules.
Audit red flags
- Significant 'third party' supplier that only serves your group.
- Ownership restructurings mid-year that change the perimeter without documentation.
Documentation & data
Documents to hold
- Legal entity chart with percentages, dated.
- List of in-scope related parties reconciled to the statutory accounts related-party note.
Data you need
- Shareholder registers.
- Board minutes showing control.
- Group structure as at each reporting date.
Who owns this internally: Group tax, with input from legal entity management and treasury.
Jurisdiction notes
- Germany
- Uses a 25% participation threshold plus a broad influence test.
- United States
- Section 482 applies to organisations under common control, tested on substance rather than a fixed percentage.
Notes by role
In-house tax teams
Rebuild the perimeter list every year. Acquisitions and internal mergers are where scope errors originate.
Frequently asked
- Are branches associated enterprises?
- A branch is part of the same legal entity, so dealings are attributed under the permanent establishment rules rather than Article 9, though the analysis is closely related.
Sources & status
- Primary source
OECD Model Tax Convention, Article 9(1)
OECD, 2017
- Primary source
OECD Transfer Pricing Guidelines, Glossary
OECD, 2022
Reference material only, not advice on a specific fact pattern. Reviewed 2026-06-30.
Careers
How this shows up in the job
A quiet favourite in technical screens: 'name three ways two companies can be associated without shareholding'.
Careers in transfer pricing