Taxpayer and tax administrator experience with the imprecise process for determining an arm's length price suggests that there is room within the arm's length principle for administrative tolerance for all taxpayers--large MNCs as well as smaller taxpayers.
Where the taxpayer provides the necessary data and documentation to establish that its prices are more likely than not arm's length, the taxpayer should be accorded a rebuttable presumption that its prices satisfy the arm's length principle with the burden of proving otherwise shifting to the tax administration," the comments said.
10 confirms that the arm's length principle does not require the application of more than one method for a given transaction (or set of transactions) and "undue reliance on such an approach could create a significant burden for taxpayers.
This aim could be achieved by setting aside domestic rules and using the new Article 7 of the OECD Model Convention as a paradigm to establish an international consensus for the capital structure of both permanent establishments and subsidiaries in line with the arm's length principle.
In a multilateral context the arm's length principle was formulated for the first time in Article 6 of the League of Nations draft Convention on the Allocation of Profits and Property of International Enterprises in 1936.