Furthering the Debate over Formulary Apportionment and the Arm's-Length Standard


 In his article, “Challenging the Status Quo: The Case for Combined Reporting,” Michael McIntyre, a professor at Wayne State University Law School, makes the case for combined reporting with formulary apportionment. The article responds to several criticisms of the approach raised by current and former officials of the Organization for Economic Cooperation and Development (see “The Arm’s-Length Principle and Developing Economies,” 20 Transfer Pricing Report 495, 10/20/11) and furthers the important debate over whether an alternative to the arm’s-length standard is needed.

Among other arguments, the author asserts that the lack of a common tax base, often considered an obstacle to the use of formulary apportionment, should equally be seen as an obstacle to applying the OECD’s widely used transactional net margin method.

While McIntyre does not call TNMM a formula per se, could the method present a way forward for those on both sides of this debate, as an approach that could be considered both arm’s-length and formulary?

The article and the Oct. 20 piece to which it responds are available online (bit.ly/vt2gEE). McIntyre’s piece will appear in the March 22 print issue of Transfer Pricing Report.

Molly Moses
Managing Editor, Transfer Pricing Report