Formula Based Transfer Pricing

Abstract

The article discusses the choice between the current arm's length based transfer pricing regime and a formula-based transfer pricing regime. It argues that a reform of our transfer pricing rules is imminent, even if it is not part of a comprehensive reform of the international tax regime (a necessary yet a more complex goal to meet). The article demonstrates that many of the objections to a formula-based transfer pricing reform may be valid in the context of the more comprehensive reform of the business income tax rules, but not, or to a lesser extent, in the context of the narrower transfer pricing reform. It concludes therefore that much of the objection to formulary apportionment becomes irrelevant in a narrower scoped reform, and that the ground is ripe for it.