The Future of Profit Splits

Abstract

In a highly integrated world where new technologies are disrupting the market, taxation and transfer pricing have gained a lot of attention because governments are seeking new ways to increase revenue collection. Although the application of the arm’s length standard is sometimes unpredictable, and its geographical approach may lead to stateless income, transfer pricing has proven to be an effective tool to protect a country’s tax base. Tax authorities and international organizations have tried to revise the transfer pricing framework through the BEPS project. However, until the new framework is settled, there is a need for an updated rational interpretation of the current methodologies to provide realistic options to allocate profits in a modern setting where multinational groups are centrally managed and intangibles are highly integrated. This Article provides such an interpretation and demonstrates
its implementation with a realistic example.