It is transfer pricing but not as we know it
01 July 2011
The CCCTB concept of relies on formulary apportionment, doing away with the arm’s-length principle (ALP). While many people welcome the opportunity to debate the future of tax compliance, others feel a switch to formulary apportionment will create just as many problems as the ALP. Sophie Ashley talks to the CCCTB’s critics and supporters about its impact on transfer pricing.
The CCCTB is proposing a system of formulary apportionment, rather than relying on the arm's-length principle, which, although more accurate, is costly and timely to implement. Some tax practitioners argue that formulary apportionment is not suited to practical implementation but others say that, while it is less accurate, it will save taxpayers significant time and money. Europe is staring at the prospect of formulary apportionment and the CCCTB, deciding whether to take the plunge. But formulary apportionment is not the only transfer pricing aspect to consider.
The valuation of intangibles has become one of the most ferociously debated aspects of transfer pricing in recent years but the CCCTB proposal does not incorporate the importance of intangible assets in the global market. The allocation of physical assets, labour and sales is the centrepiece of the CCCTB idea.
"This sharing mechanism, which assumes that all the factors produce the same rate of...
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