Paul Sutton discusses the concept of Pareto optimality and its practical application in transfer pricing with Philippe Penelle, a Ph.D. economist with 25 years of TP experience.
Philippe specialises in the valuation of intellectual property and the pricing of contractual contingent and derivative provisions. He is a former leader of the Washington National Tax Transfer Pricing Office of a Big Four Accounting Firm, and a member of the board of the National Association for Business Economics Transfer Pricing Symposium held annually in Washington, DC.
Paul and Philippe discuss:
What ‘Pareto optimal’ means in the context of controlled transactions
The related concept of ‘moral hazard’, and how it featured in early OECD discussions regarding the BEPS project
The implications for the four steps required when applying the arm’s length principle, including the role of agreements in substantiating Pareto optimality
Examples of transaction types for which the concept of Pareto optimality can create great clarity
Examples of how Philippe has used this concept to achieve better outcomes for his clients in transfer pricing challenges
Key takeaways for heads of tax and transfer pricing practitioners when designing transfer pricing policies.
Want more insights on transfer pricing, legal risk, and cross-border structuring?
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