Fairness and the Arm's Length Principle in a Digital Economy

4 Conceptual Problems

10.1093/law/9780192898715.003.0004 ◽

2021 ◽

Author(s):

Hongler Peter

Keyword(s):

Tax Planning ◽

Digital Economy ◽

Formulary System ◽

Arm’S Length Principle ◽

Potential Success ◽

Potential Failure ◽

Conceptual Problems ◽

International Tax

The last chapter of the book reviews whether the international tax regime has been a success or a failure and based on these remarks, it is assessed what the reasons are for potential success and potential failure. Afterwards, reference is made to three of the most pressing issues in the current international tax regime. This includes measures against aggressive tax planning, specific issues triggered by the taxation of the digital economy, and a discussion of whether it would better to switch from the arm’s length principle to a formulary system. The chapter will also cover some of the most recent proposals to change the current international tax regime as part of the Pillar 1 and Pillar 2 work of the Inclusive Framework.

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The Transfer-Pricing Profit-Split Method After BEPS: Back to the Future

Canadian Tax Journal/Revue fiscale canadienne ◽

10.32721/ctj.2019.67.4.sym.kobetsky ◽

2019 ◽

Vol 67 (4) ◽

pp. 1077-1105

Author(s):

Michael Kobetsky

Keyword(s):

Transfer Pricing ◽

Digital Economy ◽

Profit Shifting ◽

Allocation Rules ◽

Split Method ◽

Profit Allocation ◽

Arm’S Length Principle ◽

The Future ◽

Development Group

In 2018, the Organisation for Economic Co-operation and Development/Group of Twenty (OECD/G20) Inclusive Framework on base erosion and profit shifting (BEPS): action 10 issued revised guidance on the transactional profit-split method. Regrettably, the revised guidance failed to provide the opportunity for the profit-split method to be more often the most appropriate transfer-pricing method. The revised guidance expressly states that the lack of comparable uncontrolled transactions, by itself, is not a basis for the use of the profit-split method. Under the former guidance, the profit-split method was used infrequently. In the revised guidance, the threshold requirements for the use of the profit-split method are still restrictive. Consequently, it is likely that the profit-split method will rarely be the most appropriate transfer-pricing method. Nevertheless, the residual profit-split method is being considered for BEPS action 1, on the taxation of the digital economy. Two of the proposals under pillar 1 of the Inclusive Framework's 2019 short policy note involve the use of the residual profit-split method to allocate profits. These proposals involve new profit allocation rules that go beyond the arm's-length principle.

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