Arm's Length Principle vs. Formulary Apportionment in BEPS Action 13: Stakeholders’ Perspectives

This paper analyses comment-letter lobbying by different stakeholders to influence OECD’s documentation rules on transfer pricing within the Base Erosion and Profit Shifting (BEPS) project. Using a content analysis of stakeholders’ comments to a discussion draft on documentation requirements of Action 13 of OECD’s BEPS policies, we offer some evidence that professional accounting firms may have viewed the new documentation requirements as a stealth paradigm shift away from the arm’s length principle (ALP) to formulary allocation (FA). Our analysis suggests that other stakeholders from academia and civil society were sceptical of the comments expressed by the professional tax firms, regarding them as a means to resist changes in transfer pricing documentation. We suggest that professional accounting firms’ comments may have represented implicit lobbying against changes to the ALP regime that may have been considered beneficial to taxpayers in reducing their aggregate tax burden despite its implementation and rule complexity.