A Game of Transfer Pricing: An Analysis of the Suitability of the Arm's Length Principle and the Proposed Alternative of Formulary Apportionment
| Author | Alex Illiescu |
| Pages | 1-15 |
Dundee Student Law Review, Vol. II, No. 5
1
A Game of Transfer Pricing: An Analysis of the
Suitability of the Arm’s Length Principle and the
Proposed Alternative of Formulary
Apportionment
Alex Illiescu
INTRODUCTION
“You can’t run from them, you can’t cheat them, you can’t sway
them with excuses. If you owe them money and you don’t want
to crumble yourself, you pay it back.”1
Spoken by Lord Tywin Lannister in the fictional television programme, Game
of Thrones, this statement is surprisingly applicable in the case of the
relationships established between a multinational enterprise (MNE) and the
various national tax authorities with which it engages. Unfortunately, this often
proves not to be the case, especially in the context of a globalised world
economy where the international tax planning of MNEs has intensified due to
their desire to reduce their worldwide tax burden.2
This analysis will focus on the suitability of the “arm’s length principle”
(ALP). Particularly, some of the flaws that have been identified in relation to
the ALP’s applicability and its ability to respond to the challenges presented by
the way in which MNEs operate and the realities of the globalised economy.
Despite the current transfer pricing regime being imperfect in some respects, it
1 Tywin Lannister, “Game of Thrones”, based on George R R Martin, A Game of Thrones
(Harper Voyager 2011).
2 OECD, “Bringing the International Tax Rules into the 21st Century: Update on B ase Erosion
and Profit Shifting (BEPS), Exchange of Information, and the Tax and Development
Programme” (Meeting of the OECD Council at Ministerial Level, Paris, May 2014), 2.
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