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Date
2020-08
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Department of Jurisprudence and International Law, Faculty of Law, University of Ilorin
Abstract
The Arm’s Length Principle (ALP) is the cornerstone of the current transfer pricing regulation as recommended by both the Organisation for Economic Cooperation and Development (OECD) and the United Nations (UN).The application of ALP is predicated on treating members of a Multinational Corporation (MNC) Group (that is, the parent company and its subsidiaries)as separate legal entities and using the prices charged in a transaction between independent entities in an open market to determine or benchmark the appropriate price to be charged in a transaction among the members of the MNC group. The application of the ALP looks straight forward in theory and it was considered as the best possible standard to assess and regulate transfer pricing. However, with the advent of globalization and with the introduction of sophisticated communication systems and advanced high speed information technologies, the practical application of the ALP became a difficult and herculean task. This has provoked a lively debate and arguments for the replacement of the ALP with the Formulary Apportionment which is held to be more suitable for the new globalized economy. The objective of this paper is to examine the application of the ALP and its challenges in the new globalized economy. The paper considers the application of the Formulary Apportionment as well as its prospect and challenges in replacing the ALP as the international standard for assessing transfer pricing.
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Journal of International and Comparative Law (JICL). Vol. 8: 20-37