Shapley Value: A Fair Solution to the Value Creation Puzzle in Transfer Pricing?

19 November 2021
Verena Hahn, Yves Hervé, Salem Saljanin, and Lorraine Eden

The 2017 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations recommend that transfer pricing outcomes be aligned with value creation. The value creation approach is, however, difficult to apply when multiple legal entities in different tax jurisdictions contribute jointly to the profits a multinational enterprise earns on its intangible assets.

In an article published on 18 October 2021 by Tax Notes International, NERA Managing Director Dr. Yves Hervé, Consultant Dr. Salem Saljanin, Affiliated Academic Dr. Verena Hahn, and Dr. Lorraine Eden, Professor Emerita of Management at Mays Business School and Research Professor of Law in the School of Law at Texas A&M University, co-authored an article titled “Shapley Value: A Fair Solution to the Value Creation Puzzle in Transfer Pricing?”

The article focuses on how the Shapley value can be used by transfer pricing professionals to implement the OECD’s value creation approach when several legal entities make development, enhancement, maintenance, protection, and exploitation contributions to a multinational group’s profit.

The authors also discuss and provide an empirical case study for:

  • The OECD’s value creation approach;
  • How the Shapley value as an economic solution reflects the OECD’s valuation creation principle; and
  • How the concept of the Shapley value can be applied in practical economic transfer pricing analysis.

To read the article, please visit the link on the right.