The Seeking of a Business-Optimal Transfer Price - In accordance with the Arm's Length Principle

Sammanfattning: The search of a business-optimal transfer price has been going on for decades. One interesting solution aimed to, by the use of game theory, bargaining theory and transfer pricing, create a quantitative solution to optimize the global profits of a multinational enterprise. This paper aims to identify and analyze the legal questions emerging from that solution. The paper also aims to discuss the use of such a method in the future and its role on the international taxation arena. The primary legal question identified was whether or not the arm’s length principle accepts the usage of a maximum and minimum legally authorized boundaries. The discussion of this question is conducted from an international perspective using the OECD's arm’s length principle and its guidelines as leading source of interpretation. The answer to the legal question determined the solution viable under certain circumstances where the maximum and minimum legally authorized was determined using an appropriate arm’s length range. Another requirement detected was that the range had been determined using a statistical tool of central tendency for purposes of accuracy in its compliance with the arm’s length principle. Finally, the paper also provides a discussion whether or not the solution could conform to the arm’s length principle solely because of the objective elements of a quantitative solution. The discussion argued in favour of the conclusions that without the use of maximum and minimum legally authorized boundaries, the solution can never be in compliance with the arm’s length principle. The argumentation derived primarily from the intention of the solution being to maximize the global profits of a corporation which will, in many cases, lead to solutions that escapes taxation. However, the discussion does explore the possibility of an objective solution deriving from bargaining-, and game theory.