Is the arm’s length principle dead?

The recent OECD pillar one consultation document lays bare the widespread dissatisfaction with the tax outcomes resulting from the arm’s length principle (ALP) and current nexus rules evident since the 2013 BEPS work. Within a slowing global economy, would-be ‘hold out’ countries might have to balance an increasing plethora of taxes aimed at the digital economy (and maybe wider) worldwide against accepting higher levels of local tax than the ALP/nexus principles would mandate. Interested parties should respond to the consultation by 12 November. If agreement is not reached, the clamour for formulary apportionment, or some other way of ‘dividing the tax take’, might increase. Even if agreement is reached, the number of required simplifications and formulae suggest the arm’s length principle might become the arm’s length exception. In either scenario, the number of disputes seems unlikely to fall.