Pratique du Shadowing: OECD Transfer Pricing Guidelines 2022 - Chapter 1 - The Arm's Length Principle - Apprendre l'anglais à l'oral avec la vidéo
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Welcome everyone to a new series,
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Unpacking Transfer Pricing, where we aim to demystify complex transfer pricing concepts for our listeners who are interested in transfer pricing.
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Today, we introduce our listeners with the first chapter of the OECD Transfer Pricing Guidelines issued in 2022,
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the Arms Length Principle.
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The Arms Length Principle is the bedrock of transfer pricing practice.
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Our goal today is to give you a high-level understanding of transfer pricing.
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This isn't professional advice and for specific situations one should always reach out to actual transfer pricing consultants.
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Think of this as your foundational knowledge builder.
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A link to a detailed audio only description is available in the comment section below.
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So let's begin.
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The arms length principle is the cornerstone of international transfer pricing,
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ensuring fair market transactions between multinational enterprises and independent entities.
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It aligns with Organization for Economic Cooperation and Development Guidelines,
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promoting equal tax treatment and reflecting economic realities.
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This principle helps prevent profit manipulation,
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though it poses administrative challenges for both taxpayers and tax administrations.
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The arm's length principle ensures fair market transactions by aligning tax treatment between multinational enterprise groups and independent enterprises.
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It reflects economic realities, focusing on conditions akin to those between independent enterprises.
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While it avoids tax manipulation assumptions,
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it poses administrative challenges for taxpayers and tax administrations,
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maintaining international consensus on transfer pricing.
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enterprises rely on market forces to shape their commercial and financial relations,
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with competition directly influencing prices and conditions.
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In contrast, associated enterprises may not be as affected by these forces,
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often replicating market dynamics internally.
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Their relationships can influence bargaining outcomes,
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leading to conditions differing from those between independent enterprises.
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Article 9 of the OECD Model Tax Convention underpins transfer pricing,
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emphasizing conditions between associated enterprises that differ from independent ones.
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It allows for profit adjustments to reflect market conditions.
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This forms the basis for bilateral tax treaties and comparability analyses,
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treating multinational enterprise group members as separate entities,
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aligning with the arms length principle.
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The arms length principle treats multinational enterprise group members as separate entities,
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focusing on transactions and their comparability with uncontrolled or independent transactions.
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This approach assumes associated enterprises operate independently, influenced by market forces.
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Unlike traditional business treatment, it emphasizes distinct entities,
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independent transactions, and market conditions,
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ensuring alignment with the arm's length standard.
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The comparability analysis framework is essential for applying the arm's length principle.
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It compares controlled transactions between associated enterprises with uncontrolled transactions to identify necessary adjustments.
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Key considerations include functions, assets, and risks.
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The goal is to determine if adjustments are needed to reflect arm's length conditions
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and calculate the profits that would have accrued at arm's length.
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The arms length principle ensures competitive parity by aligning tax treatment for multinational enterprise groups and independent enterprises,
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preventing tax distortions.
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It has gained international consensus,
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forming the basis for transfer pricing globally.
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By eliminating tax biases in economic decisions,
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it fosters international trade and investment, driving economic growth.
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Its effective application is evident in commodity transactions and financial lending.
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Applying the arm's length principle faces challenges like unique transactions
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that independent enterprises wouldn't undertake and information limitations due to confidentiality or lack of comparables in vertically integrated industries.
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Additionally, the administrative burden is significant,
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requiring extensive documentation and judgment from both tax administrations and taxpayers,
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highlighting the complexity of transfer pricing.
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Global formulary apportionment proposes allocating profits using a predetermined formula, ignoring market conditions.
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This method risks double taxation and allows formula manipulation.
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It creates administrative complexity and compliance burdens, requiring extensive documentation.
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Despite these challenges, the arms length principle remains preferred,
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as it aligns with actual market conditions and treats associated enterprises as separate entities,
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ensuring fair tax treatment.
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By and large, global formulary apportionment method was not widely adopted.
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Local market features significantly impact transfer pricing under the arm's length principle.
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Infrastructure, workforce availability, market proximity,
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and regulatory environment can create operational advantages or disadvantages.
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When local comparables are unavailable,
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distinguish between market features and intangibles,
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assess market advantages, and determine allocation of net benefits,
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ensuring alignment with independent enterprise practices.
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Multinational enterprise groups benefit from synergies like combined purchasing power and economies of scale.
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Incidental benefits from group affiliation need no separate compensation.
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However, deliberate actions, such as centralizing purchasing, require comparability adjustments.
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Benefits should be shared among members proportionally,
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rewarding the coordinating entity appropriately for their role in achieving these synergies.
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Consider a parent company P with a AAA credit rating.
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Its subsidiary S with BBB credit rating.
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Due to group association, S can obtain loan at A-rated interest,
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one notch above its standalone rating of BBB.
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This benefit of borrowing at a lower interest rate,
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without needing to compensate the parent.
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However, if subsidiary S obtains loan with AAA rating interest rate due to explicit guarantee by parent P,
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then there should be an arm's length guarantee fee to be paid by S to P.
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In another case, a central purchasing manager negotiates group discounts,
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reducing widget costs from $200 to $110.
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It would then warrant an arm's length compensation of,
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say, $116, which would include service fee.
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These examples are to highlight that if there is explicit benefit,
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combined with deliberate and concerted effort,
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such transactions should be compensated at an arm length price.
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The arms-length principle is crucial for international transfer pricing,
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ensuring fair tax treatment by treating multinational enterprise group members as separate entities.
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It relies on comparability analysis to align controlled transactions with market conditions.
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Despite its robustness, challenges arise in integrated businesses and administrative burdens,
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Yet it remains the foundation for reflecting economic realities in cross-border transactions.
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That's all for this episode of Unpacking Transfer Pricing.
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Remember to seek expert advice when taking business decisions.
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Do join us in this 10-episode series where we delve into fascinating area of transfer pricing.
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Until then, keep learning.
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Vocabulaire et conseils d’expression pour cette leçon
Cette vidéo contient 99 phrases et 969 mots à répéter en shadowing. La partie parlée dure 8:00. Le locuteur parle à un rythme régulier d’environ 121 mots par minute, confortable pour le shadowing. Seuls 67 % des mots font partie des 3 000 mots les plus courants en anglais, le vocabulaire est donc exigeant.
Vocabulaire clé de cette vidéo
15 mots moins courants de la vidéo, avec leur prononciation et leur sens :
- enterprise /ˈɛntəˌpɹaɪz/ (nom) — entreprise. A company, business, organization, or other purposeful endeavor.
- principle /ˈpɹɪn.sɪ.pəl/ (nom) — principe. A fundamental assumption, fundamental law or guiding belief.
- entity /ˈɛn.tə.ti/ [-tʰi] (nom) — entité. That which has a distinct existence as an individual unit, often used for organizations which have no physical form.
- multinational (adjectif) — multinational. Of, or involving more than two nations (externally between countries or internally in a country).
- align /əˈlaɪn/ (verbe) — aligner. To form a line; to fall into line.
- administrative /ədˈmɪn.ɪ.stɹə.tɪv/ (adjectif) — administratif. Of or relating to administering or administration.
- reflect /ɹɪˈflɛkt/ (verbe) — refléter, réfléchir. To bend back (light, etc.) from a surface.
- rat /ɹæt/ (nom) — rat, souris. Any of the numerous members of several rodent families that usually have short limbs, a pointy snout, a long, hairless tail, and a body length greater than…
- adjustment /əˈd͡ʒʌst.mənt/ (nom) — ajustement, arèglement. The action of adjusting something.
- burden /ˈbɝdn̩/ (nom) — charge, fardeau. A heavy load.
- taxpayer /ˈtakspeɪə/ (nom) — contribuable. A person who is subject to, liable for, or pays tax.
- manipulation /məˌnɪp.juˈleɪ.ʃən/ (nom) — manipulation. The practice of manipulating or the state of being manipulated.
- formula /ˈfɔː.mjʊ.lə/ (nom) — formule. Any mathematical rule expressed symbolically.
- guarantee /ˌɡæɹ.ənˈtiː/ (nom) — garantie. Anything that assures a certain outcome.
- obtain /əbˈteɪn/ (verbe) — obtenir, se procurer. To get hold of; to gain possession of, to procure; to acquire, in any way.
Les verbes à particule que vous entendrez
- rely on (verbe) — se fier à, compter sur. To be confident in.
Prononciation à surveiller
- Les sons « sh » et « zh »: transaction /tɹænˈzækʃən/, manipulation /məˌnɪp.juˈleɪ.ʃən/, compensation /ˌkɑm.pənˈseɪ.ʃən/, documentation /ˌdɑkjəmɛnˈteɪʃən/, contrast /kənˈt(ʃ)ɹæst/
- Mots longs — placez bien l’accent: entity /ˈɛn.tə.ti/ [-tʰi], administrative /ədˈmɪn.ɪ.stɹə.tɪv/, manipulation /məˌnɪp.juˈleɪ.ʃən/, compensation /ˌkɑm.pənˈseɪ.ʃən/, comparable /ˈkɒmpəɹəbəl/
Comment s’entraîner avec cette vidéo
- Écoutez la vidéo en entier une fois sans parler et notez les mots que vous ne connaissez pas.
- Répétez phrase par phrase à vitesse normale, en reprenant chacune jusqu’à ce que votre rythme corresponde à celui du locuteur.
- Enregistrez-vous et comparez avec l’original, en faisant attention à des mots comme enterprise, principle, entity.
Qu'est-ce que la technique du Shadowing ?
Le Shadowing est une technique d'apprentissage des langues fondée sur la science, développée à l'origine pour la formation des interprètes professionnels. Le principe est simple mais puissant : vous écoutez de l'anglais natif et le répétez immédiatement à voix haute — comme une ombre suivant le locuteur avec un décalage de 1 à 2 secondes. Les recherches montrent une amélioration significative de la précision de la prononciation, de l'intonation, du rythme, des liaisons, de la compréhension orale et de la fluidité.