The Arm's Length Standard: Making it Work in a 21st Century World of Multinationals and Nation States

Forthcoming in Thomas Pogge and Krishen Mehta (editors), GLOBAL TAX FAIRNESS, Oxford University Press, 2015.

29 Pages Posted: 24 Feb 2015

See all articles by Lorraine Eden

Lorraine Eden

Dept of Management, Mays Business School, Texas A&M University ; School of Law, Texas A&M University

Date Written: February 21, 2015

Abstract

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. I assume 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. My focus in this paper is therefore to recommend changes within the current ALS system to improve its workability in a world of 21st century multinationals and nation states.

Keywords: transfer pricing, arm's length standard, tax avoidance, multiantionals

JEL Classification: f23, e62, h26, h25

Suggested Citation

Eden, Lorraine, The Arm's Length Standard: Making it Work in a 21st Century World of Multinationals and Nation States (February 21, 2015). Forthcoming in Thomas Pogge and Krishen Mehta (editors), GLOBAL TAX FAIRNESS, Oxford University Press, 2015., Available at SSRN: https://ssrn.com/abstract=2568266

Lorraine Eden (Contact Author)

Dept of Management, Mays Business School, Texas A&M University ( email )

Dept of MGMT, TAMU 4221
College Station, TX 77843-4221
United States
979-777-3489 (Phone)

HOME PAGE: http://mays.tamu.edu/mgmt/

School of Law, Texas A&M University ( email )

1515 Commerce St.
Fort Worth, TX Tarrant County 76102
United States
9797773489 (Phone)

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