Transfer Pricing and Value Creation

1. S. 35Introduction

This contribution mainly has two parts. The first part aims to analyse transfer pricing policies such as the Arm’s Length Principle (ALP) and Formulary Apportionment (FA) after the BEPS era in the context of “Digitalization of Economy” that was brought out by Mr Petruzzi. The second part tries to analyse the evolution of transfer pricing policies in the following three regions: the European Union, the United States, and People’s Republic of China.

1.1. Debate on Arm’s Length Principle and Formulary Apportionment

We might say that jurisdictions are like multinational enterprises as their main objective is to maximize profit while complying with social, legal, and moral standards to the extent that they do not endanger their existence. As this “enterprise” develops, new technologies involving Artificial Intelligence (AI) are being developed or bought and implemented to minimize cost and maximize efficiency in order to realize an outcome of achieve maximized profit. Following the digitalization using AI, big data etc., it becomes more and more difficult to determine and allocate the profit for each jurisdiction in order to tax it. If jurisdictions solely apply the ALP, it...