Formelallokering som alternativ til armslængdeprincippets anvendelse ved transfer pricing

Cecilie Jaque Hammer

Student thesis: Master thesis


The arm’s length principle in the Danish Tax Assessment Act section 2 must be interpreted in accordance with the arm’s length principle in article 9 in OECD Model Tax Convention and OECD Transfer Pricing Guidelines. With the latest release of OECD Transfer Pricing Guidelines in 2017, which mainly were a consolidation of OECD’s BEPS Actions 8-10 which purpose is to assure that transfer pricing outcomes is aligned with the value creation, a new “economic substance over legal form” principle has been implemented as the relevant standard for the analysis, determination and review of transfer pricing arrangements between related par-ties. This new principle is not in accordance with the pre-BEPS interpretation of the arm’s length principle and is therefore not compliant with the arm’s length principle in the Danish Tax Assessment Act section.
BEPS refers to tax avoidance strategies by multinational enterprises that exploit gaps and mismatches in tax rules with the purpose of artificially shift profits to low tax-locations. De-spite of implementation of the BEPS initiatives by OECD a sufficient solution to this problem hasn’t been established. On this background solutions of formulary apportionment for trans-fer pricing purposes has been suggested to replace the arm’s length principle. The EU Com-mission has proposed Common Corporate Tax Base which abandons the arm’s length princi-ple of treating each inter-company transaction separately while OECD has proposed a Two-Pillar approach to address the tax challenges from the digitalization of the economy.
The implementation of a formulary apportionment to replace the arm’s length principle would result in a simplification of the complex legislation and reduce administrative costs for group entities. But the process of changing the international corporate tax system would also require changes or adjustments to domestic legislation and tax treaties and could easily result in new disputes if the rules about nexus and interaction with current legislation isn’t clear. While a formulary apportionment would seem to be a solution for base erosion it wouldn’t seem to solve profit shifting since the factors of the formulary can be manipulated by group entities.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2020
Number of pages85
SupervisorsLouise Fjord Kjærsgaard