Globally, BEPS 2.0 is in the process of development at the OECD, introducing new concepts of nexus for certain large multinationals-i.e., Pillar One-in which customer location can create a taxable presence. Therefore, BEPS 1.0 would not suffice, and new waves of legislation began to emerge from an OECD perspective. The current international tax-transfer pricing system is generally built upon the notion that taxation in a particular jurisdiction is triggered by traditional concepts of nexus-i.e., taxable presence. Meanwhile, certain governmental bodies continued to compete for these profits by lowering corporate tax rates and offering special tax incentives in order to attract investment, also known as the race to the bottom. ![]() ![]() This sentiment was especially pervasive as companies in high-margin sectors amassed revenues, profits, and market values that the world had never seen, despite the global Covid-19 pandemic. However, as the digital economy became more prevalent in the years following BEPS 1.0, tax administrations, the OECD, and other bodies were of the view that further reform was needed. Starting with the release of the OECD/G20 BEPS 2015 Final Reports, commonly referred to as BEPS 1.0, tax administrations around the world have adopted and implemented new regulations which are intended to more efficiently tax the value creation as driven by 21st century business models. and other countries within the OECD, and in broad statutes and case law dating over a century, the pace of regulatory change in the past decade has been dramatic. ![]() While transfer pricing regulations have been in place for nearly three decades in the U.S. To understand the future, it often helps to first understand the past. Niccolò Machiavelli once said, “I’m not interested in preserving the status quo I want to overthrow it.” This approach to changing the status quo certainly seems to have similarities to current developments in the world of international taxation, particularly as it relates to transfer pricing and the arm’s length standard that governs the way multinational affiliates transact among themselves via financing, intangible property, product, and service flows.
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