Transfer Pricing

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Transfer Pricing in Developing Countries An Introduction


1. Abstract 2. International tax law & its sources 3. Brief history of International Tax Law 4. Who gets the pie? 5. Arm 's length principle : Cornerstone of International Tax Law 6. Transfer pricing methods 7. Problems with of source taxation of MNE 's 8. Internet & e-commerce : Achilles heel of current International taxation regime? 9. Formulary Apportionment (FA) 10. Existing uses of Formulary Apportionment systems in the world 11. Developing countries & Formulary Apportionment 12. Critique of Formulary Apportionment 13. Transfer pricing and Formulary Apportionment : One continuum 14. Conclusion 15. Acknowledgements 16. References

Section 1 Abstract The aim of
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Initially, the League of Nations appointed 4 eminent economists (Prof. Bruins of Netherlands, Prof. Einaudi of Italy, Prof. Seligman of the USA, Prof.Stamp of UK) to conduct a theoretical study of international double taxation. Their expert report published in 1923[6] was used as the basis of the 1928 models[7] which in turn find their pattern repeated in many of the Treaties of today. 3.b) 1935 Model convention[8] The 1935 Model Convention defined the term “business income” and was the first model treaty to contain specific provision on allocation of profit from one company to an associated company. Though the 1935 convention was never formally adopted it was of great significance because of the issues it dealt with. The 1935 draft adopted the principle of income attributable to a permanent establishment based on separate accounting. Interestingly, it provided two more methods – a) empirical method (percentage of turnover for example) b) fractional apportionment under which net business income was determined by various factors. Further, the 1935 model provided for all items of income other than those allocable to specific sources to be grouped together as “business income” and rendered taxable on a net basis. The 1935 draft was mainly based on the “Carroll Report” [9] which was compiled based on Carroll 's visit to 27 countries to extensively study their tax systems. Carroll
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