The lack of comparable companies in certain geographies is a well-known problem for transfer pricing analyses. There unfortunately does not exist universally accepted guidance when domestic financial information is not available. This motivated the “Proposed Framework for Foreign Comparables Selection and Adjustment” developed by TPED, to which we contributed statistical analyses.
This short article makes an attempt at assessing the magnitude of the lack of comparable data in certain geographies. The map below depicts the location of independent companies used for transfer pricing analyses, worldwide. It clearly confirms the lack of comparable companies in certain geographies such as Africa, Middle East and Central and South America. In the Bureau Van Dijk Orbis database, roughly 40% of all independent companies are located in Europe and 35% in South and East Asia.
To give slightly more details on how this map was created:
- The map was created on a large panel of more than 30,000 independent companies in the BvD Orbis database.
- The size of each bubble is proportional to the number of independent companies.
- Each bubble is centered on the country capital.
Some warnings are also in order:
- The definition of what an independent company is varies depending on country legislation. The criterion retained here is that a company is independent if no individual shareholder owns more than 25% of direct or total ownership in the company.
- In North America, tax authorities typically rely on the use of listed companies for transfer pricing analyses, all of which may not be considered independent by our data provider, Bureau Van Dijk. This map does not give a precise estimate of the number of listed companies in each country and is thus irrelevant in this context.
- For MNEs, only the parent company would be incorporated in the database (in the country where it is located). This map thus ignores the geographical distribution of MNEs’ activities across countries.
Feel free to reuse this map for your own purposes (with a proper citation).