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Study On Related Issues Of The Application Of Arms Length Standard Of Transfer Pricing Of Intangibles

Posted on:2015-11-26Degree:MasterType:Thesis
Country:ChinaCandidate:L X XiongFull Text:PDF
GTID:2296330467454463Subject:International law
Abstract/Summary:PDF Full Text Request
In the field of international tax, transfer pricing has been an important issue for along time. Regarding the deep reason for this phenomenon, there’s no denying thattax consideration carries a lot weight, but it’s not the only reason, especially for thosemultinational enterprises (MNEs), they are doing so mainly for internalization andbusiness strategy, keeping the monopoly advantage in the competition. Arms LengthStandard (‘ALS’) has been adopted by most developed countries and developingcountries as well, it has been the golden rule for tax authority for investigation ofcompliance. However, with the upcoming of intellectual economy, intangibles havebeen the major assets transferred by MNEs in this picture. Also, because of theinherent characteristic of intangibles, especially in respect of the uncertainty of itsvalue, rendering ‘ALS’ application impossible or with huge inaccuracy, which makesit the perfect method to minimize the tax burden for MNEs. Faced with thedisadvantageous position in new circumstances (MNEs usually have pre-knowledgeon the questionable intangible), the tax authority adopts ‘Hindsight’ as an effectivecountermeasure to prevent MNEs from capturing improper gains from relatedtransactions in the context of intangibles. Specifically speaking, the tax authority shallmake transfer pricing adjustment towards those transactions which are inconsistentwith its economic substance, restructuring the transaction in accordance with what itmay deem the substance of the deal and the respective contribution and risks assumedby the Parties, and further identify each party’s transaction profit and relevant contractterms. However, Unlike U.S, OECD is rather conservative towards “hindsight” which makes sense since “hindsight” is essentially a unilateral action, within broaddiscretion in one’s tax authority, which may cause tense conflict between taxpayersand tax authority, different tax authorities as well.According to OECD’s opinion, it would contravene the arm’s length principle toapply hindsight. Regarding the situation when valuation is highly uncertain at the timeof the transaction, OECD more focus on “what independent enterprises would do”.On the other hand, though tax authority may impose adjustment in accordance withactual profit, safe harbors exist, which means taxpayers shall be totally safe if relevantrequirement are met. Therefore, more and more academic scholars suggest that ‘ALS’shall be replaced by Global Formulary Apportionment, but there is no easy way toreach global agreement on the exact formula, considering the interest conflict. Fromthe perspective of tax management, we cannot deny the prospect of the application ofGlobal Formulary Apportionment. For China, the current legislations are still exist asa blanket of regulations, with no differentiation of tangibles and intangibles, laborassets and financial assets, etc. for better safeguard our state tax interest, it isrecommended to improve and complete our tax legal system in reference with therelevant legislation experience of U.S. or OECD.
Keywords/Search Tags:Intangibles, Transfer, Pricing Arms LengthStandard
PDF Full Text Request
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