2. Valuation of transactions 3.16. Market price should be used as the basis for
valuation of transactions in international trade in
services. Thus, transactions will generally be valued at
the actual price agreed on by the supplier and the
consumer. BPM5 identifies some of the more common
circumstances under which it may not be possible to
establish a market price and recommends that in such
circumstances it is appropriate to develop a proxy
measure, if possible by analogy with known market
39
Because embassies and consulates are considered
extraterritorial to the economies in which they are located, the
compensation received by host country (local) staff is
classified as payments of income to residents by non-
residents.
prices established under conditions that are considered
essentially the same as those pertaining to the unpriced
transaction.
3.17. Particular problems may arise in valuing
international transactions between related
40
enterprises
integrated under the same management but situated in
different economies. Transactions may not be market
transactions because there is a lack of independence
among the parties to the exchange, and the prices used in
portraying such transactions in the books of the
enterprises (called transfer prices) may or may not be
market prices. Transfer pricing that is not based closely
on market considerations could be expected to be
common among related enterprises conducting business
across national boundaries, because disparities between
taxes and regulations imposed by different governments
are a factor in management decisions on the optimum
allocation of profits among units.
41
3.18. The present Manual follows BPM5 by
recommending that, where distortions between market
and transfer prices are large, replacement of book values
with market value equivalents is desirable in principle,
although in practice such prices may be difficult to
estimate. In view of the practical difficulties involved in
substituting an imputed or notional market value for an
actual transfer value, substitution should be the
exception rather than the rule. However, if certain
transfer prices are so divorced from those of similar
transactions that the transfer prices significantly distort
measurement, the prices should either be replaced by
market price equivalents or be separately identified for
analytical purposes.