Q : Given the proposal of common consolidated corporate tax base (CCCTB) of the EU, do you expect formulary apportionments to gain further prominence?

Kunj Vaidya (Partner and Leader, Transfer Pricing, PwC India)

The CCCTB approach could be in deviation to the arm’s length principle since the factors determining the aforementioned approach may not necessarily adopt a fair market comparison. Such formulary apportionments have not been prescribed under the OECD guidelines. Such apportionments also seem to be contrary to the profit split approach.

Given the increased focus on protection of tax base by jurisdictions, it may be unlikely for formulary apportionments to be preferred over arm’s length as determination of arm’s length considers more number of variables to determine an appropriate share (geographical factors, economic factors etc). However, similar to safe harbour provisions, it may be possible to consider a formulary apportionment for certain class of transactions within a defined threshold.

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