Get In Touch
The future of arm’s length principle – Is there a need to revisit the principle?

The future of arm’s length principle – Is there a need to revisit the principle?

Under existing laws and tax treaties of most countries, TP rules are predicated on the ALP. The principle requires the terms and conditions of transactions and the allocation of profit among members of a
controlled group, to be consistent with those established among similarly situated unrelated entities. Thus, the international standard is a ‘separate entity’ centric approach that evolved in response to
changing global conditions over the last century.

However, the principle has received a lot of criticism, one reason for which is the evolution of innovative business models. Several proposals have been discussed in past which completely overlook the ALP (for
ex. earlier US proposal for a Border-Adjusted Tax, the European Commission’s proposal for the CCCTB and the India’s draft proposal of fractional apportionment for profit attribution to PE’s etc.). It seems that it is
difficult to argue with the conclusion that there remains a significant level of concern about the current ALP system, a matter that has been accentuated by the changing techniques in demand generation.

The purpose of this paper is to discuss the concept of ALP, analyze the feasibility of applying the ALP, identify the strengths and weakness of ALP and enlist some ways in which such weakness may be
addressed. An attempt has been made to highlight the broad criticism that ALP, comments on the alignment of ALP with holistic value creation. The paper ends up with some open questions for the readers to ponder upon.

Leave a comment

Your email address will not be published. Required fields are marked *

Recent Publiaction

The The LegalTech Book: The Legal Technology Handbook for Investors, Entrepreneurs and FinTech Visionaries: Edited by Sophia Adams Bhatti, Susanne Chishti, Akber Datoo, Drago Indjic
Read More
The Leadership Challenges – Book by James M. Kouzes & Barry Poswer
Read More
The courage to be disliked – Book by Ichiro Kishimi & Fumitake Koga
Read More

The views in all sections are personal views of the author.

How would you rate your experience?
Do you have any additional comment?
Enter your email if you'd like us to contact you regarding with your feedback.
Thank you for submitting your feedback!