Apart 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 1.20
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By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter I: The arm's length principle | Tag: Compliance costs, Global formulary apportionment
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- 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 represented by global formulary apportionment should be...
- 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 and the book and tax accounting rules...
- 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 standards and of multiple currencies. Accounting standards...
- TPG2022 Chapter II Annex I paragraph 1[See Chapter II, Part III, Section B of these Guidelines for general guidance on the application of the transactional net margin method. The assumptions about arm’s length arrangements in the following examples are intended for illustrative purposes only and should not be taken as prescribing adjustments and arm’s length arrangements...
- 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 with economic reality. They argue that an...
- 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 1.30By 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 tax treaties....
- 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 basis, the profits of one or more...
- TPG2022 Chapter IV paragraph 4.5This section describes three aspects of transfer pricing compliance that should receive special consideration to help tax jurisdictions administer their transfer pricing rules in a manner that is fair to taxpayers and other jurisdictions. While other tax law compliance practices are in common use in OECD member countries – for...
- TPG2022 Chapter I paragraph 1.16Global formulary apportionment has sometimes been suggested as an alternative to the arm’s length principle as a means of determining the proper level of profits across national taxing jurisdictions. The approach has not been applied as between countries although it has been attempted by some local taxing jurisdictions....