Commodity transactions in transfer pricing concern the pricing of raw materials and other fungible goods — crude oil, natural gas, uranium, coal, mineral fertilisers, and liquefied natural gas among them — traded between associated enterprises. The legal foundation is the arm’s length principle as expressed in Article 9 of the OECD Model Tax Convention and incorporated into domestic legislation such as Canada’s section 247 of the Income Tax Act, Norway’s section 13-1 of the Tax Act, and equivalent provisions across jurisdictions. Because commodities are traded in high volumes and their prices fluctuate continuously on reference markets, the gap between an arm’s length price and an artificially managed intercompany price can produce very large income adjustments, making this category among the most financially significant in transfer pricing litigation.

Disputes characteristically arise where a taxpayer routes commodity sales through an intermediary entity in a low-tax jurisdiction — as in Cameco, where uranium was sold to a Swiss subsidiary, or in the Odesa Port Plant case, where mineral fertilisers were exported to multiple Swiss and other trading counterparties. Tax authorities typically challenge both the choice of transfer pricing method and the benchmark price applied, arguing that the Comparable Uncontrolled Price method should prevail over the taxpayer’s preferred Transactional Net Margin Method. The Colombian Carbones El Tesoro litigation exemplifies this directly: the authority substituted the McCloskey coal price list as a CUP, while the taxpayer had applied TNMM. Freight and logistics pricing in commodity supply chains is separately contested, as shown in the 1991 Swedish Shell decision involving crude oil shipping templates.

The OECD Transfer Pricing Guidelines address commodity transactions specifically in Chapter II, paragraphs 2.18–2.22 of the 2022 edition, endorsing the CUP method as generally most appropriate and introducing the concept of a “quoted price” or “pricing date” to prevent taxpayers from retrospectively selecting favourable reference prices. Chapter I guidance on delineation of transactions and contractual terms also bears directly on disputes involving trading intermediaries. The BEPS Action 10 work on commodity transactions informed these provisions.

Courts examine whether a quoted commodity price on a recognised exchange constitutes a reliable CUP, how adjustments for quality, location, and contract terms should be made, and whether the taxpayer’s chosen intermediary performed genuine functions justifying a margin. The PGNiG gas case and the South African Sasol decision illustrate that courts scrutinise functional analysis rigorously before accepting or rejecting a pricing structure.

These cases collectively demonstrate that commodity transfer pricing generates some of the largest assessments in tax authority practice, and practitioners advising resource-sector clients must master both market pricing mechanics and the OECD’s quoted-price methodology.