The Transfer-Pricing Profit-Split Method After BEPS: Back to the Future

Michael Kobetsky
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Michael Kobetsky: Melbourne Law School, University of Melbourne

Canadian Tax Journal, 2019, vol. 67, issue 4, 1077-1105

Abstract: In 2018, the Organisation for Economic Co-operation and Development/Group of Twenty (OECD/G20) Inclusive Framework on base erosion and profit shifting (BEPS): action 10 issued revised guidance on the transactional profit-split method. Regrettably, the revised guidance failed to provide the opportunity for the profit-split method to be more often the most appropriate transfer-pricing method. The revised guidance expressly states that the lack of comparable uncontrolled transactions, by itself, is not a basis for the use of the profit-split method. Under the former guidance, the profit-split method was used infrequently. In the revised guidance, the threshold requirements for the use of the profit-split method are still restrictive. Consequently, it is likely that the profit-split method will rarely be the most appropriate transfer-pricing method. Nevertheless, the residual profit-split method is being considered for BEPS action 1, on the taxation of the digital economy. Two of the proposals under pillar 1 of the Inclusive Framework's 2019 short policy note involve the use of the residual profit-split method to allocate profits. These proposals involve new profit allocation rules that go beyond the arm's-length principle.

Keywords: Arm's length; BEPS; OECD; profit-split; transfer pricing (search for similar items in EconPapers)
Date: 2019
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DOI: 10.32721/ctj.2019.67.4.sym.kobetsky

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