The Transfer Pricing Regs Need a Good Edit

26 Pages Posted: 16 May 2013

See all articles by Susan C. Morse

Susan C. Morse

University of Texas at Austin - School of Law

Date Written: May 14, 2013


The U.S. government has broad discretion to change the transfer pricing regulations as they apply to corporate multinationals. These regulations need changing because they give too much leeway to taxpayers and will continue to serve an important function in the division of international tax jurisdiction regardless of the fate of pending reform proposals. U.S. tax administrators should write revised transfer pricing rules that afford taxpayers less contracting freedom. They should incrementally add formulaic elements to rules and use high-friction, nontax reference points such as employee location.

Incremental formulary changes carry less risk than the sweeping adoption of a global formulary apportionment standard. Although such changes might appear to present a tension with longstanding treaty commitments to the arm’s length standard in transfer pricing, as articulated by OECD, a developing global consensus supports increased incremental use of formulary methods. Treaty partners might well accept and perhaps follow such changes, particularly if they resulted in the allocation of income away from low-tax affiliates and toward treaty partner jurisdictions as well as the U.S..

Keywords: transfer pricing, regulatory discretion, formulary, incremental

JEL Classification: K33, K34, H25

Suggested Citation

Morse, Susan C., The Transfer Pricing Regs Need a Good Edit (May 14, 2013). Pepperdine Law Review, Vol. 40, 2013, Available at SSRN:

Susan C. Morse (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

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