Change search
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf
The Concept of Commensurate with Income: Retroactive adjustments and the arm's length standard
Jönköping University, Jönköping International Business School, JIBS, Commercial Law.
Jönköping University, Jönköping International Business School, JIBS, Commercial Law.
2009 (English)Independent thesis Advanced level (degree of Master (One Year)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

This master’s thesis deals with the transfer pricing of intangibles and focuses on the U.S. standard commensurate with income. This standard has been accused of being incompatible with the overriding principle of transfer pricing, the arm’s length standard, and is not endorsed by the OECD. Recent developments on the topic include the introduction of a similar provision in Germany. The purpose is to evaluate the standard’s compatibility with the arm’s length standard and to establish the current position of the concept of commensurate with income.

To meet this purpose the thesis first describes the inherent problems surrounding transfer pricing of intangibles as well as provides a background to transfer pricing in the U.S. The focus then shifts towards the history, application and criticism of the commensurate with income standard. The thesis also gives an account of the OECD’s and Germany’s positions on the matter. In the final analysis the compatibility with the arm’s length standard is examined from two angles; the commensurate with income standard’s valuation approach on one hand and its use of hindsight on the other.

The commensurate with income standard uses an income approach to valuation of transfers of intangibles instead of the market approach recommended by the OECD. This may lead to overvaluation of intangibles and is not strictly in line with the arm’s length standard. The German commensurate with income provision is more in line with the market approach and is therefore more compatible with the arm’s length standard in this aspect.

The commensurate with income standard allows adjustments to transfer prices with the benefit of hindsight. The actual income from a transferred intangible is thus used as evidence as to whether or not the original transfer price was set reasonably. The OECD is of the opinion that only information known at the time of the transfer should be used, but makes an exception for the particular situation when a tax authority can prove that unrelated parties would have adjusted transfer prices retroactively. The point made here is that the commensurate with income standard places the burden of proof on the taxpayer, while the OECD places it on the tax authority. This allows the OECD to stay true to the arm’s length standard, while the U.S. and Germany deviates somewhat from it.

However, there is no exact manner in which to define the arm’s length standard, and even the OECD deviates from it more or less. The commensurate with income standard may be one step further away from the purest definition of it but not a complete deviation. The German version of commensurate with income manages to target the same problem while staying closer to the arm’s length standard. Germany has thereby found a middle way and might hold the solution to finding a consensus between the OECD and the U.S.

Place, publisher, year, edition, pages
2009. , 63 p.
Keyword
transfer pricing, commensurate with income, arm's length standard, intangible property
National Category
Law (excluding Law and Society)
Identifiers
URN: urn:nbn:se:hj:diva-7492OAI: oai:DiVA.org:hj-7492DiVA: diva2:134063
Presentation
(English)
Uppsok
samhälle/juridik
Supervisors
Examiners
Available from: 2009-01-21 Created: 2009-01-16 Last updated: 2009-01-21Bibliographically approved

Open Access in DiVA

fulltext(0 kB)657 downloads
File information
File name FULLTEXT01.pdfFile size 0 kBChecksum SHA-512
2920e5995760e702a890555270ccde7cc9c0b99ab0348b4c011a240e8def6f8b1626e969bd00c39cb8b8385edde0fb73668606986181329a0ad8ecf7723293d6
Type fulltextMimetype application/pdf

By organisation
JIBS, Commercial Law
Law (excluding Law and Society)

Search outside of DiVA

GoogleGoogle Scholar
Total: 657 downloads
The number of downloads is the sum of all downloads of full texts. It may include eg previous versions that are now no longer available

Total: 989 hits
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf