Location-Specific Advantages: Modified Application of the Arm's Length Principle in a Knowledge-Based Economy

Location-Specific Advantages: Modified Application of the Arm's Length Principle in a Knowledge-Based Economy
Book
Claire (Xue) Peng, LLM
WU - Tax Law and Policy Series
Format/Price
9789087227326
292
EUR
105
| USD
125
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This book discusses location-specific advantages, a novel concept originating from the transfer pricing practice in China and India.

Why This Book?

The term “location-specific advantages” (LSAs), including location savings and market premiums, is a novel concept originating from the transfer pricing practice in China and India.

The term refers to the general features of a specific geographical location that may (positively) influence the profitability of a multinational enterprise (MNE). International consensus has been reached that LSAs are comparability factors and that local comparables can capture the value of LSAs. Following such rule, countries with LSAs (i.e. host countries) are entitled to tax only a very limited amount of MNEs’ business profits when only low-functionality nexuses exist locally. Modern MNEs increasingly use the principal/central entrepreneur structure and digitalization in their operating business models, strategically arrange low-functionality nexuses in host countries and therefore pay reduced or minimized taxes in those countries, while continuing to exploit their LSAs.

This practice will eventually disrupt the allocation of global taxing rights to host countries vis-à-vis home countries (where the entrepreneur entity resides). Doubt therefore arises as to whether the arm’s length principle is still an appropriate or the preferred approach for global profit allocation. Notably, the OECD has proposed a profit allocation system that partially departs from the arm’s length principle under BEPS 2.0 Pillar One to address the tax challenges arising from digitalization.

Against such background, this book focuses on how to amend the profit allocation rules based on the arm’s length principle when there is only a low-functionality nexus in the host country, acknowledging that the current guidance and practical rules in respect of applying the arm’s length principle have not sufficiently recognized the LSAs of host countries. It aims to strengthen the taxing rights of host countries and to restore confidence in the arm’s length principle in transfer pricing.

Location-Specific Advantages: Modified Application of the Arm’s Length Principle in a Knowledge-Based Economy

DOI: https://doi.org/10.59403/20k2nsd
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Chapter 2: Conceptual Debate of Location-Specific Advantages

DOI: https://doi.org/10.59403/20k2nsd
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Chapter 3: Transfer Pricing Debate in International and National Domains

DOI: https://doi.org/10.59403/20k2nsd
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Chapter 4: Economic Views of Multinational Enterprises

DOI: https://doi.org/10.59403/20k2nsd
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Chapter 5: Theories of Taxing MNEs

DOI: https://doi.org/10.59403/20k2nsd
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Chapter 6: The Arm’s Length Principle

DOI: https://doi.org/10.59403/20k2nsd
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Chapter 7: A New Framework for the Guidance and Practice of the Arm’s Length Principle

DOI: https://doi.org/10.59403/20k2nsd
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Dr Claire (Xue) Peng is a transfer pricing practitioner based in London, currently with KPMG. In addition to this book, she has published various articles on transfer pricing and other international tax law topics. She was a research associate and lecturer at the WU Transfer Pricing Center, established at the Institute for Austrian and International Tax Law of the Vienna University of Economics and Business (WU), from 2016 to 2019. This book is based on her doctoral thesis, submitted in fulfilment of the requirements of the doctoral programme in business law at WU.