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Official debate over alternative to arm’s-length principle will happen

Transfer pricing’s arm’s-length principle (ALP) has faced some tough criticism over the last two days at International Tax Review’s global transfer pricing forum in Singapore.

In almost every panel the viability of the ALP was discussed, though it was concluded that, until sufficient research and testing has taken place, an alternative would likely present a different set of problems altogether.

In a panel on the first day, which looked at transfer pricing policy approaches by the OECD and the UN, TP Ostwal, the author of two chapters of the UN manual on transfer pricing, said the answer may not lie with ALP or its common alternative, formulary apportionment. Ostwal said another method would need to be investigated if taxpayers and revenue authorities really want to see a more effective solution.

The question was later posed to panellists on a financial services transfer pricing panel on the second day, where Sam Sim, head of transfer pricing for a global bank, said: “If you get more and more multilateral APAs [advance pricing agreements] there is more chance of companies accepting quasi-formulary apportionment,” said Sim.

However, Sim said he could not see a global move towards formulary apportionment.

Gavin Helmar, of PwC, said official debate over alternatives to the ALP will happen and added that another debate, about the comparability standard, is also on the cards.

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