Insight

Future of the Arm's-Length Principle

Arm's-length principle versus global formulary apportionment—read about how BEPS 2.0 and other OECD initiatives are reassessing transfer pricing

Thomas Bettge

Thomas Bettge

Senior Manager, Tax, WNT - EVS, KPMG US

+1 713-319-2173

Jessie Coleman

Jessie Coleman

Principal, Washington National Tax, Economic & Valuation Services, KPMG US

+1 202-251-8879

Quyen Huynh

Quyen Huynh

Principal, International Tax, Washington National Tax, KPMG US

+1 949-885-5400

Alistair Pepper

Alistair Pepper

Managing Director, Economic & Valuation Services, Washington National Tax, KPMG U.S. Tax Services (London) LLP

The arm’s-length principle has been the cornerstone of the international tax system for about a century; that system is now in a state of flux and seems under threat. The OECD BEPS 2.0 project is seen by many as a potential paradigm shift that, in the medium term, will lead to the end of transfer pricing as we know it.

In a series of articles, Thomas Bettge, Jessie Coleman, Quyen Huynh, and Alistair Pepper take a step back and reassess the merits of the arm’s-length principle and the significant problems with global formulary apportionment—the perceived alternative. They also consider the impact that the BEPS 2.0 project and other OECD initiatives may have on the future of transfer pricing.

Collectively, the authors brings a wealth of tax policy insights, with experience at the OECD, the World Bank Group, and U.S. Treasury. For those that are interested in the future of transfer pricing, these articles provide real insights in where we’ve come from and where we might be going to.


Read the articles

The Arm's-Length Standard After the Pillars
September 26, 2022 | In their third article on this topic, the authors explore the potential impact of the OECD’s current work program on how to approach transfer pricing. First, they focus on the impact of BEPS 2.0, and then, they consider the threats and opportunities created by the OECD’s ongoing work on article 9 of the model tax convention and potential improvements to dispute resolution mechanisms. | Tax Notes International
In Defense of the Arm’s-Length Principle
September 19, 2022 | In a follow-up to their “Why It’s Still Not Time for Global Formulary Apportionment” article, the authors argue in this article that all the proposed alternatives to the arm’s-length principle lack its two key benefits of neutrality and flexibility and looks ahead to what the future may bring. | Tax Notes International
Why It's Still Not Time for Global Formulary Apportionment
August 22, 2022 | The international tax system is in a state of flux, with potentially significant changes being driven by the OECD’s BEPS 2.0 project. Academics and the European Commission are (again) asking whether it is time to global formulary apportionment. The authors of this article explain why this time hasn’t arrived and explore the problems countries that chose to adopt formulary apportionment would face. | Tax Notes International