Arm's length principle scrutiny: tightening transfer pricing transparency and anti avoidance to curb profit shifting and protect tax bases.
The article emphasises that the arm's length principle governs transfer pricing method selection (CUP, RPM, CPM, PSM, TNMM, Other) and that the Transactional Net Margin Method, while useful when gross profit comparables are unavailable, is vulnerable to manipulation by MNEs benchmarking subsidiaries to low margins to shift profits. Using the Kellogg India example, it argues for stricter comparability standards, country by country reporting, advance pricing agreements and enhanced disclosure to curb profit shifting, protect tax bases and ensure transfer prices reflect real economic activity. (AI Summary)