Ms Cora O'Brien:

With an arm’s length basis, one is looking at transactions within a group. Where one does not have a price because it is an intergroup transaction, then one has to find an arm's length price and do one’s best to get the best arm's length price. A whole part of the OECD BEPS, base erosion and profit shifting proposals, is making sure there are tighter rules about those arm's length prices and they are closer to reality. They will seek to ensure there is more of an onus on companies to do more analysis and share more information about them. This is about entity by entity, trading with each other, based on arm's length prices. One brooks profits and losses to places where value is created. Corporation tax is about profits and they are supposed to be measured, based on value created.

In such a model, one will sometimes get double taxation. That is where double tax treaties will come in so as to eliminate that. They go hand-in-hand as a tax system globally. That is the one the OECD is working on improving.

We then have the Commission’s separate proposal, an almost artificial way, of taking all the separate entities within a group within the EU, or anybody with a presence in a member state, of putting them all in together into one pie. This is then divided, based on these factors, which are arbitrary. They do not actually match the economic model of the company and are not based on the way it does its business. They do not take account of where its operations are based, where its management and control is located, where its intellectual property is held or where its risk takes place which should be driving where its profits are. Instead, it is just based on these three factors. That is where the difference lies.

It is very hard to put those two systems together without causing cracks and creaks in the regime. There is an acceptance we need to get the rules better on corporate tax. However, I do not think they are going to be better if we try to superimpose a second regime on top of the arm's length regime.