Rethinking the Arm’s Length Principle and Its Impact on the IP Licence Model after OECD/G20 BEPS Actions 8-10: Nothing Changed But the Change?

Tax planning involving intangibles has become a major concern among governments, revenue authorities, media, the general public and international organizations. Multinational enterprises have been perceived to be able to shift profits by transferring and centralizing the ownership of intangibles in jurisdictions with a tax-friendly environment without materially changing the overall functionality. The OECD addressed this concern in the BEPS Actions 8-10 Final Report by introducing the “new” concepts of value creation and DEMPE functions to tackle aggressive tax planning structures involving intangibles. This article critically assesses the OECD’s objectives and argues that this recalibration of the arm’s length principle could actually facilitate the alignment of taxing rights with the place of economic activity, contemplated by the OECD without necessarily deterring and possibly reinforcing the tendencies of typical intangibles-focused profit-shifting planning models, expressed collectively here as the IP Licence Model. In effect, the revamped arm’s length principle may not be simply a benign profit allocation tool.