6 BEPS Modifications to Transfer Pricing Rules »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
This chapter describes the principal changes in the application of the ALP adopted in connection with BEPS. From the outset of the BEPS Project in 2013, it was understood that corporate tax base erosion was a multifaceted problem. The ALP had been a direct target of some of the most vocal critics of corporate tax avoidance. It was therefore politically imperative that transfer pricing be one of the primary areas of focus in the BEPS Project. The problems with the transfer pricing system described in the two previous chapters were not secrets by any means. It was well understood that the existing transfer pricing rules, at least in the way they were being applied, were not preventing the type of income shifting into tax favorable locations that the BEPS Project intended to counteract.
5 Capital »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
This chapter is devoted to the problems surrounding the transfer, use, and rewards to capital. It highlights the evolution of international tax planning by MNEs to include significant shifts of capital to low or no tax states. The chapter also discusses the limited relevance of the ALP to those developments. The scale and public profile of MNE tax planning using tax havens, coupled with the apparent inability of the international tax system to prevent these developments, increased the pressure for some form of response. In addition, the significant shift of capital to low-function companies in low or no tax states has led to increased concerns on the lack of guidance relating to the return to capital for transfer pricing purposes. The combination of these issues meant that, in the run-up to BEPS, there were mounting questions and pressures facing the ALP and the OECD.
Contents »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
Contents Summary »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
2 The Development of the ALP »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
This chapter traces the evolution of the ALP since its original adoption in the 1920s and 1930s. In very broad terms, the stages of its evolution may be characterised as involving four distinct phases. The period prior to 1968 was a period in which the primacy of the ALP as an income allocation tool was established. Next, the period from the mid-1960s to the mid-1980s represented a sharp corrective to the position of complacency, and it was in this period that the emphasis shifted to a highly detailed elaboration of transactional pricing. In the period from the mid-1980s, that detailed transactional pricing approach was taken further, and some of the perceived fundamental difficulties arising from that approach began to be addressed. Finally, the period since 1995 has been characterised by the proliferation across the globe of highly detailed compliance regimes relating to transfer pricing and by increasingly difficult issues.
1 The Emergence of the ALP »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
This chapter looks at how attempts to reduce the incidence of double taxation eventually gave way to the emergence of the ALP. Double taxation involved the simultaneous taxation of the same income or profits by at least two states. Here, the early discussion was dominated by whether, in an effort to prevent double taxation, taxing rights should be allocated only to the headquarters state or whether, and to what extent, taxing rights might also be granted to the ‘source’ state in which specific items of income might arise or be generated. The discussion, as the chapter shows, eventually proceeded to the division of profits. The ALP was then introduced to ensure that, for tax purposes, there was no diversion of profits resulting from any manipulation of the financial relations between parent and subsidiary companies.
7 Evaluation of BEPS Transfer Pricing Measures »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
This chapter evaluates the changes described in the previous chapter, and considers whether they provide a solid foundation for future transfer pricing determinations. The BEPS transfer pricing outputs are prodigious. They reflect a serious effort to come to grips with issues that have bedeviled transfer pricing practice for many years. In some respects they do so relatively successfully. In other respects, however, improvement has been hard to come by and in some instances the BEPS changes create new concerns, which this chapter considers in more depth. It also looks at some of the collateral consequences that may flow from the BEPS work.
Index »
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
Introduction »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
This introductory chapter takes a look at the so-called arm's length principle (ALP), which forms the core of traditional transfer pricing policy and thought. It attempts to evaluate the ALP according to contentions over whether or not the ALP approach is a viable one. Hence, to assess the system of ALP-based transfer pricing rules, the chapter argues that the nature of the ALP must be clarified, its derivation and evolution examined, and its operation in practice considered. To that end, the chapter first discusses the ALP and its functions in brief. It then offers some preliminary considerations on whether or not the ALP is a viable approach, and to that effect introduces five factors for assessment: the ALP's ease of administration, economic efficiency, robustness to abuse, overall systemic stability, and fairness.
4 Practical and Theoretical Problems Encountered in Applying the Arm’s Length Principle »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
This chapter examines in greater detail several of the alleged shortcomings of transfer pricing rules based on the ALP. Critics of the ALP argue that various aspects of the ALP cause the existing transfer pricing rules to fall short of the objective of providing a clear and efficient means for accurately allocating income among members of a multi-national enterprise (MNE) group. Such problems, this chapter argues, fall into three categories. A first set of issues involves matters that are conceptual in nature. Next are the problems that are entirely practical in nature. Finally, there is a set of challenging treaty interpretation issues regarding the scope and purpose of Article 9 of the OECD Guidelines and the ALP.
3 Practical Application of the Arm’s Length Principle »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
This chapter provides a general summary of transfer pricing practices prior to the Base Erosion and Profit Shifting (BEPS) Project. The summary is based primarily on the principles and concepts contained in the 2010 version of the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines and in the 2013 UN Manual. The chapter first describes the general process of conducting a transfer pricing analysis. Thereafter, the application of that process in two especially difficult situations, those involving intangibles and services, is examined. The chapter then describes the current application of the ALP to permanent establishments (PEs). Finally, this chapter concludes with some comments on the prevalence of disputes relating to the ALP.
8 Prospects for the ALP after BEPS »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
This chapter considers whether ALP-based transfer pricing rules, as modified in connection with the BEPS work, satisfy the considerations previously discussed for a workable transfer pricing system. It concludes that further evolution will certainly be required if the ALP is to continue to play a central role in the tax system, although such evolution is problematic for several reasons. The chapter also remarks that the approach to the capital problem reflected in BEPS is inadequate and incomplete. Whether the ALP provides a workable response to the problems related to capital movements and capital allocations that exist in the current system is, according to this chapter, highly doubtful.
Table of Legislation »
Richard S Collier, Joseph L Andrus
From: Transfer Pricing and the Arm's Length Principle After BEPSRichard Collier, Joseph L Andrus
