Reconstructing the International Tax System

Source-based taxation and the arm's length standard have been foundational elements of the international tax system for many decades. With the advent of the highly digitalized platform firm, the OECD and many other stakeholders assert that these principles have been rendered obsolete. In their stead, these stakeholders have proposed an alternative hybrid international tax system. Under this proposed hybrid system, the long-standing profit allocation rules would be applied in the first instance to determine the preliminary attribution of in-scope multinational firms' taxable income to individual taxing jurisdictions. These results would then be subject to a secondary reallocation designed to ensure that a portion of such firms' taxable income is attributed to, and taxable by, jurisdictions in which consumers and users reside (market jurisdictions). This secondary allocation the core of the OECD's Pillar One and an essential element of its two-pronged Pillar One-Pillar Two Solution explicitly deviates from both the arm's length standard and the principle of source-based taxation.

For many reasons, examined in this book, the OECD's Pillar One would not provide for the effective taxation of highly digitalized platform firms, and, by extension, it would not stabilize the international tax system. The author argues that source-based taxation and the arm's length standard are entirely compatible with the attribution of a portion of highly digitalized platform firms' taxable income to market jurisdictions. However, new transfer pricing methodologies and a revised definition of 'control' for transfer pricing purposes are required to achieve this result. Combining important findings and insights from academic research in a variety of fields with the author's extensive practical experience in both public and private spheres, this book is appropriate for academics as well as private sector advisors in the fields of transfer pricing and international tax, chief financial officers of multinational corporations and tax policy analysts.

Provides an economic critique of proposed changes to the international tax system Proposes a more robust and sustainable approach to stabilizing the international tax system Combines a rigorous academic approach with extensive practical experience in both the public and private spheres

Inhalt

.- Introduction.

.- Part I: The Unstable Status Quo.

.- Chapter 1. The Challenges Posed by Base Erosion and Profit Shifting.

.- Chapter 2: Tax Authorities' Unilateral Responses.

.- Chapter 3:The Need for Moderation and Collaboration.

.- Part II: Working Towards a New Equilibrium: Rethinking Approaches to Complex Transfer Pricing Issues.

.- Chapter 4: Common Ground on Matters of Principle.

.- Chapter 5: Proposed Bifurcation of Transfer Pricing Issues.

.- Chapter 6: The Role of Third Party Data Reconsidered; The Scope for Expanded Use of Safe Harbors.

.- Chapter 7: Substance over Form in the Context of Transfer Pricing; Expanded Role of Economic/Game Theory.

.- Chapter 8: The Case for Selective Application of Formulary Apportionment Methods.

.- Chapter 9: The Case Against the Income Method and the Assumption that IP has an Infinite Useful Life.

.- Chapter 10: Conclusions.