Formulary Apportionment: Myths and Prospects - Promoting Better International Tax Policy and Utilizing the Misunderstood and Under-Theorized Formulary Alternative

30 Pages Posted: 16 Oct 2010 Last revised: 14 Apr 2015

See all articles by Reuven S. Avi-Yonah

Reuven S. Avi-Yonah

University of Michigan Law School

Ilan Benshalom

Hebrew University of Jerusalem - Faculty of Law

Date Written: October 16, 2010

Abstract

This paper seeks to re-examine the formulary alternative to transfer pricing by inquiring whether partial integration of formulary concepts into current practices would offer a reasonable alternative to transfer pricing rules. We believe that the key to achieving an equitable and efficient allocation of MNE income is to solve the problem of the residual, i.e., how to allocate income generated from mobile assets and activities whose risks are born collectively by the entire MNE group. These assets and activities generate most of the current transfer pricing compliance and administrative costs, as well as tax avoidance opportunities. A limited formulary tax regime that allocates only the residual portion of MNE income may therefore offer significant advantages. Furthermore, such a regime would not require significant deviations from current practices, or substantial modifications of the international tax regime.

Keywords: Transfer Pricing, Arm's Length Standard, Formulary Apportionment

JEL Classification: H25, H26

Suggested Citation

Avi-Yonah, Reuven S. and Benshalom, Ilan, Formulary Apportionment: Myths and Prospects - Promoting Better International Tax Policy and Utilizing the Misunderstood and Under-Theorized Formulary Alternative (October 16, 2010). U of Michigan Law & Econ, Empirical Legal Studies Center Paper No. 10-029, U of Michigan Public Law Working Paper No. 221, Available at SSRN: https://ssrn.com/abstract=1693105 or http://dx.doi.org/10.2139/ssrn.1693105

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

Ilan Benshalom

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Mount Scopus, IL 91905
Israel

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,283
Abstract Views
8,372
Rank
29,399
PlumX Metrics