IT-APAs - Vertical Harmonization of Transfer - Pricing Standards

Abstract

The World Customs Organization (WCO) and the Organization of Economic Cooperation and Development (OECD) have begun considering the harmonization of transfer pricing norms among income tax, customs and VAT regimes. Two conferences have been organized in May of 2006 and 2007.

These conferences have concluded so far: (a) that more analysis is needed; (b) that harmonization will require adjustments on all sides; and (c) that pilot projects (real world statutory and administrative efforts to harmonize) or case studies in harmonization (hypothetical fact patterns) are needed to facilitate consideration. This paper assesses the three basic paths being pursued at the present time: (1) homogenization; (2) validation; and (3) vertical harmonization, and asks (based on the current discussions) is there a blueprint for change?

The paper concludes that an affirmative answer is possible, if the current proposals are aligned as short-term, medium-term, and long-term solutions. Seen in this way, a path forward is visible.

There is some evidence (and agreement) that working with APAs is a good first step. APAs have functioned as incubators - places where new solutions to difficult problems have been born - in the past. Robust and persuasive APA solutions can become international norms.

Seen in this manner the way forward might be (a) to use IT-APAs (a taxpayer-specific vertical harmonization solutions) to develop the persuasive national solutions to the ordering, granularity and timing problems that stand in the way of (b) validation convergence, and then with this experience as background the international community might then see the way to devise (c) unitary transfer pricing regime - a single set of principles and mechanisms that would homogenize transfer pricing rules across income tax, customs and VAT. A new international standard could then arise.

Keywords: Transfer Pricing, World Customs Organization, Organization for Economic Cooperation and Development, WCO, OECD, Customs, VAT, Income Tax, Vertical Harmonization, Horizontal Harmonization

JEL Classification: H20, H21, H29, H89, K34