On Defining the Concept of Value Generation for Transfer Pricing in the 21st Century

Abstract

This paper discusses the conceptual framework of delineation the concept of value creation in the context of international taxation. It is about discussing different approaches to facilitate an alignment of value creation and profit allocation. Thus, the paper is explicitly not discussing technical (accounting) issues relating to the implementation of Pillar 1. It might, however, illustrate that the recent developments of Pillar 1 (Amount A) have thoroughly neglected addressing the question of value creation (and not only for the digital economy) – therefore the paper aims to provide food for thought and re-focus on the discussion on value creation that dominated transfer pricing in 2017-2019.

Keywords: arm's length standard, formulary apportionment, transfer pricing, international taxation, value creation,

JEL Classification: H2, H26, K34, B12, B14, F53