EIBR Gastcollege
Part 1:
At arms length-beginsel (AL)
AL doesn’t work, but we don’t know what to change.
What is Transfer Pricing (TP) for?
-Why do you want to set prices between two enterprises? To shift profits, so you have to pay less
tax? No.
Why TP?
-TP is gonna tell us what one enterprise pays to another. What do enterprises charge to one another.
-If you have established this, then you get strategic: you want to get your costs in a country with high
taks and your income with low tax.
-As a enterprise you set the price advantageous for yourself to get the above.
-TP has a answer for that: At arm’s length.
At arm’s length:
-At arm’s length: what A pays to B if there were no relationship between them.
-you have a 25% margin on both sides of the right price.
Problem with AL:
-If company A sets up B and you only have to establish the price. Then A is gonna try to put B in low
tax countries. That is the problem.
TP exsists outside tax.
What do we want to accomplish with AL:
-Non-economic way to allocate income.
Problem:
-Global supply chain is a problem:
-In a world without integrated firms there wouldn’t be a problem, because everybody wants to get as
much profit as possible.
-But with integrated firms like Apple, they outsource every activitiy to different firms. So sales to that
firm, logistics to that firm etc. However Apple and all these firms are all together. Very unclear where
Apple gets what. But Apple has to draw out each year every transaction to establish a price.
Problem is THERE IS NO COMPARABLE. (no free market). So Apple makes up a story for every
transaction and everybody is happy. (without this an iphone would cost 9000 dollar).
Formulary aportionment:
-I don’t care about your expenses and income. We start with what is your global profit as a whole
multinational? (so not per transaction). After that the profit is divided amongst other countries.
Three elements Formulary Apportionment:
-Sales
-Assets
-Labour
Take profits from the global multinational. After that divide it amongst the enterprises.
Part 1:
At arms length-beginsel (AL)
AL doesn’t work, but we don’t know what to change.
What is Transfer Pricing (TP) for?
-Why do you want to set prices between two enterprises? To shift profits, so you have to pay less
tax? No.
Why TP?
-TP is gonna tell us what one enterprise pays to another. What do enterprises charge to one another.
-If you have established this, then you get strategic: you want to get your costs in a country with high
taks and your income with low tax.
-As a enterprise you set the price advantageous for yourself to get the above.
-TP has a answer for that: At arm’s length.
At arm’s length:
-At arm’s length: what A pays to B if there were no relationship between them.
-you have a 25% margin on both sides of the right price.
Problem with AL:
-If company A sets up B and you only have to establish the price. Then A is gonna try to put B in low
tax countries. That is the problem.
TP exsists outside tax.
What do we want to accomplish with AL:
-Non-economic way to allocate income.
Problem:
-Global supply chain is a problem:
-In a world without integrated firms there wouldn’t be a problem, because everybody wants to get as
much profit as possible.
-But with integrated firms like Apple, they outsource every activitiy to different firms. So sales to that
firm, logistics to that firm etc. However Apple and all these firms are all together. Very unclear where
Apple gets what. But Apple has to draw out each year every transaction to establish a price.
Problem is THERE IS NO COMPARABLE. (no free market). So Apple makes up a story for every
transaction and everybody is happy. (without this an iphone would cost 9000 dollar).
Formulary aportionment:
-I don’t care about your expenses and income. We start with what is your global profit as a whole
multinational? (so not per transaction). After that the profit is divided amongst other countries.
Three elements Formulary Apportionment:
-Sales
-Assets
-Labour
Take profits from the global multinational. After that divide it amongst the enterprises.
