Stock-Based Compensation and the Arm’s Length Principle

This article will explain the background and the accounting/tax implications of stock-based compensation (SBC) and its context within transfer pricing (TP) and the arm’s length principle. More specifically, the article will focus on the inclusion of SBC in the cost base for TP purposes. Legislation and judicial decisions regarding SBC are raised and considered and, finally, the article provides alternative approaches to TP methodologies for SBC.