BEPS Action Plan 8-10 : Its Impact on Transfer Pricing and the Way Forward

On 5th October 2015, the OECD along with G20 finally released a fifteen-point action plan on their project on Base Erosion and Profit Shifting (BEPS). Issues related to transfer pricing formed a major part of this final report, with BEPS Action Plan 8-10 focusing on it exclusively. The actions pertaining to transfer pricing in the 15-point BEPS Action Plan addresses a number of issues and the ways to tackle it. However, all these reports come down to one central objective, i.e., aligning the place where business activities were reported for the purposes of tax with the place where actual value creation of the business entity occurred. The same is reflected from the first few lines of the explanatory statement of the OECD report of 5th October, 2015, wherein this action plan is referred to as a bold move by the policy makers to “ensure that profits are taxed where economic activities take place and value is created”. BEPS Action Plan 8-10 works to accomplish this objective precisely. This paper discusses the impact of the BEPS Action plan on transfer pricing as a concept and on the taxpayers, precisely the Multi National Enterprises (MNEs) in Part I of the paper. Part II of the paper discusses the drawbacks in the 15-point Action Plan and the adverse consequences it might lead to in the near future. Lastly, this paper seeks to answer the question of whether the BEPS Action Plan and the arm’s length principle as forwarded by the Action Plan is feasible in the era of digital economy or not. This paper concludes by suggesting what should be the way forward in finding an adequate method of computation of transfer pricing