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Global Tax Fairness$
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Thomas Pogge and Krishen Mehta

Print publication date: 2016

Print ISBN-13: 9780198725343

Published to Oxford Scholarship Online: March 2016

DOI: 10.1093/acprof:oso/9780198725343.001.0001

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The Arm’s Length Standard

The Arm’s Length Standard

Making It Work in a 21st-Century World of Multinationals and Nation States

(p.153) 6 The Arm’s Length Standard
Global Tax Fairness

Lorraine Eden

Oxford University Press

Many transfer pricing experts argue the arm’s length standard (ALS) is “dead” and should be replaced by a formulary apportionment system that allocates the profits of a multinational enterprise among its home and host countries using a formula based on capital, labor, and sales. Criticisms of the arm’s length standard fall into two categories: concerns that (1) abusive transfer pricing by multinationals is rampant, unfair, and draining development; and (2) the current transfer pricing rules are difficult to implement in theory and in practice. This chapter assumes that, at least for the foreseeable future, the arm’s length standard will be the predominant method for taxing related party transactions within multinational enterprises. Its focus is therefore to recommend changes within the current ALS system to improve its workability in a world of twenty-first-century multinationals and nation-states.

Keywords:   transfer pricing, arm’s length standard, multinational corporations, multinational enterprises, formulary apportionment, corporate income tax

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