On September 13, Robert Couzin, counsel at Couzin Taylor, an international tax law firm allied with Ernst & Young, delivered the 17th annual David R. Tillinghast Lecture on International Taxation entitled “The End of Transfer Pricing?”

Transfer pricing refers to the pricing of transactions between related parties, and often bears significant tax consequences for the taxpayer and taxing jurisdictions. For example, a multinational enterprise (MNE) may have a manufacturing subsidiary in one jurisdiction and a retail subsidiary in another. The price at which the manufacturing subsidiary is deemed to have sold products to the retail subsidiary determines the allocation of the MNE’s overall profits among the two jurisdictions, and thus the tax revenue received by each jurisdiction. And in cases where one jurisdiction bears a lower tax rate, an MNE may be able to reduce their overall tax burden by shifting more profits to the lower rate jurisdiction.

Couzin argued that the established paradigm for determining transfer prices, the “arm’s length principle,” in which transfer prices are determined through a hypothetical open-market transaction between two unrelated parties, is neither theoretically nor practically tenable. He suggested that “formulary apportionment,” where profits are attributed to each jurisdiction based on factors such as sales or wages, is a “true alternative” to the arm’s length paradigm.  

Watch the full video of the event (1 h 10 min):


Posted on September 19, 2012 by guest contributor Ari Glogower '12, who is currently pursuing an LL.M. in taxation through the NYU Graduate Tax Program.