Say goodbye to the arm’s length principle

The G20 has endorsed the The Organisation for Economic Co-operation and Development’s (OECD’S) roadmap for resolving the ‘tax challenges arising from the digitalisation of the economy’. The reallocation of profits and minimum tax proposals [PDF 3 MB] that have emerged following a recent round of consultations could put an end to the arm’s length principle that has governed transfer pricing for decades.

After a slow and tentative start, the OECD’s push for a solution on how to allocate and tax the profits from digital business is gathering momentum.

Following consultations, initial proposals from earlier in the year have now been crystallised into a twin-pillar framework and a series of detailed options within it [PDF 3 MB]. With the backing of the G20, the OECD has also set an ambitious roadmap for reaching an internationally-agreed consensus by the end of 2020.

So, what is being proposed within the OECD’s programme of work and what are the implications?