Global formulary apportionment has been promoted as an alternative to the arm’s length principle by advocates who claim that it would provide greater administrative convenience and certainty for taxpayers. These advocates also take the position that global formulary apportionment is more in keeping with economic reality. They argue that an MNE group must be considered on a group-wide or consolidated basis to reflect the business realities of the relationships among the associated enterprises in the group. They assert that the separate accounting method is inappropriate for highly integrated groups because it is difficult to determine what contribution each associated enterprise makes to the overall profit of the MNE group.
TPG2017 Chapter I paragraph 1.19
Category: D. Guidance for applying the arm's length principle, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter I: The Arm's Length Principle | Tag: Contribution analysis, Global formulary apportionment
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- TPG2022 Chapter I paragraph 1.20Apart from these arguments, advocates contend that global formulary apportionment reduces compliance costs for taxpayers since in principle only one set of accounts would be prepared for the group for domestic tax purposes....
- TPG2022 Chapter I paragraph 1.32For the foregoing reasons, OECD member countries reiterate their support for the consensus on the use of the arm’s length principle that has emerged over the years among member and non-member countries and agree that the theoretical alternative to the arm’s length principle...
- TPG2022 Chapter I paragraph 1.28Difficulties also would arise in determining the sales of each member and in the valuation of assets (e.g. historic cost versus market value), especially in the valuation of intangibles. These difficulties would be compounded by the existence across taxing jurisdictions of different accounting...
- TPG2022 Chapter I paragraph 1.30By disregarding intra-group transactions for the purpose of computing consolidated profits, global formulary apportionment would raise questions about the relevance of imposing withholding taxes on cross-border payments between group members and would involve a rejection of a number of rules incorporated in bilateral...
- TPG2022 Chapter I paragraph 1.19Global formulary apportionment has been promoted as an alternative to the arm’s length principle by advocates who claim that it would provide greater administrative convenience and certainty for taxpayers. These advocates also take the position that global formulary apportionment is more in keeping...
- TPG2022 Chapter I paragraph 1.18Global formulary apportionment should not be confused with the transactional profit methods discussed in Part III of Chapter II. Global formulary apportionment would use a formula that is predetermined for all taxpayers to allocate profits whereas transactional profit methods compare, on a case-by-case...
- TPG2022 Chapter I paragraph 1.21OECD member countries do not accept these propositions and do not consider global formulary apportionment a realistic alternative to the arm’s length principle, for the reasons discussed below....
- TPG2022 Chapter I paragraph 1.27Contrary to the assertions of its advocates, global formulary apportionment may in fact present intolerable compliance costs and data requirements because information would have to be gathered about the entire MNE group and presented in each jurisdiction on the basis of the currency...
- Hungary – Legislation on use of Interquartile Range and MedianAs part of tax legislation recently enacted in Hungary, rules governing the application of statistical tools – arm’s length range and adjustments within the range – will now be governed by law. When determining arm’s length prices based on benchmarks of comparables it...
- EU Report on Improving the Functioning of the Arbitration Convention (2015)In April 2015 the Forum agreed on a Report on Improving the Functioning of the Arbitration Convention including a revised Code of Conduct for the effective implementation of the Arbitration Convention. The report and the revised Code of Conduct are the result of...