Emergence,Development and Evolution of Legal Attributes of Arm’s Length Principle〔*〕

Chen Chen

(1.Law School Nanjing University,Nanjing Jiangsu 210093; 2.Law School Anhui University of Finance and Economics, Bengbu Anhui 233030)

Ⅰ.Foreword

Arm’s length principle(arm’s length principle)is also known as the normal trade principle,fair trade principle or separate accounting principle(separate accounting principle)，which is the core standard for tax authorities of various countries to regulate the transfer pricing behavior of multinational corporations.Transfer pricing is one of the most common methods used by multinational companies to avoid international tax obligations.The essence of using arm’s length principle to standardize transfer pricing is to “apply the replication of transaction rules between non-affiliated enterprises in the open market to the circulation of goods and services among affiliated enterprises”.〔1〕Based on the requirements of this principle,transnational corporations must adjust and distribute the income and expenses incurred between multinational affiliated enterprises by referring to the standard of transaction price or profit between independent enterprises under the same transaction conditions.Otherwise,the tax authorities may face tax adjustments.Because arm’s length principle puts the affiliated enterprises of multinational corporations in the same tax status as other non-affiliated enterprises,it can effectively avoid the tax advantages and disadvantages that may arise between the two types of enterprises,thus distorting their competitive position.〔2〕Therefore,after it was first established and applied by the United States in Revenue Act of 1934,it was quickly absorbed and adopted by the OECD,the United Nations Model bilateral tax Agreement and the OECD transfer pricing Guide,and was popularized throughout the world.In the process that arm’s length principle is generally accepted and applied by many countries,it has experienced many changes from the application method to the legal attribute,in order to deal with the application dilemma caused by the increasing frequency of the transaction of electronic commerce and intangible assets.And the awkward situation replaced by the global formula distribution method.Despite the skepticism that arm’s length principle has been promised and widely applied by tax authorities in all countries,it has become the cornerstone of national transfer pricing laws.〔3〕

Ⅱ.The origin and transplantation of arm’s length principle

1.The origin of arm’s length principle

The United States was the first country to clarify the concept of arm’s length principle in its domestic tax laws.The War Revenue Act of 1917 made such a provision in 1917：“When a fair determination of investment capital or taxable income is required,the company must submit consolidated returns.” Although it is a simple reference,the clause makes it clear that tax authorities should legally regulate the transfer pricing that has been challenged.The Revenue Act of 1921,enacted four years later,described in more detail the transfer pricing rules of the previous Act,in which Congress declared：“In any transaction or trade between the same interests directly or indirectly owned or controlled by two or more affiliated enterprises,tax officials in any circumstances are considered appropriate,the related transactions or trade accounts with purpose of these transactions or trade income,profits,income,deductions or capital allocation or distribution accurately.” Since the promulgation of The Revenue Act of 1921,a large number of related laws have been promulgated,in order to be able to clearly respond to the profits of related enterprises,and avoid the profits of American businesses being “milking” without cause，These laws further expand the authority of tax officials to reallocate total income and expense deductions from affiliated enterprises.However,what is an appropriate or “precise” distribution of benefits?The concept remained vague and was not clearly defined until 1934,when Revenue Act of 1934 came into effect Section 45 of the Act provides：The tax authorities should tax the controlled taxpayers and the uncontrolled taxpayers under the same conditions,and take the uncontrolled taxpayers as the reference standard to determine the net proceeds of the controlled taxpayers from assets or transactions.…The criterion applicable to all cases is to treat a controlled taxpayer as another non-controlled taxpayer engaged in independent transactions.〔4〕This is the same way we now understand arm’s length principle.Since the promulgation and implementation of Revenue Act of 1934,subsequent legislation in the United States has followed and developed the essential connotation and basic content of arm’s length principle,and gradually solidified this principle into solidifying to test whether the transaction of affiliated enterprises is fair or not.The basic criteria for normal trading.Section 482 of federal tax code,passed by Congress in 1994,formally defines arm’s length principle：As long as two or more organizations,whether or not they are incorporated,whether they are incorporated in the United States or whether they are affiliated or not,owned by,or directly or indirectly controlled by,the same stakeholders,the IRS may take all necessary measures to prevent tax evasion or clearly reflect the income of related parties.〔5〕

2.Transplantation of arm’s length principle

Arm’s length principle was first established by the United States in its domestic tax laws,then it began to be transplanted to other countries in the world,and finally developed into the cornerstone of domestic transfer pricing legal system.In the process,the Economic and Social Council (ECOSOC) and the OECD have made great contributions.In article 9 of their respective model tax treaties (i.e.United Nations Model tax Agreement and Oecd Model tax Agreement ),they jointly propose that countries should adopt arm’s length principle to deal with the transfer pricing of multinational affiliated enterprises in bilateral tax treaties.In particular,the OECD Financial Affairs Committee has been concerned about transfer pricing in international taxation since 1930s,and has issued transfer pricing and multinational enterprises (1979 report)，transfer pricing and multinational enterprises：three tax issues (“Report of 1984”)，thin capitalization (“Report of 1987”)，transfer pricing guidelines and tax administration for multinational corporations (“1995 Guide”)，Permanent establishment profit attribution report (“Report of 2006”) and transfer pricing guidelines for multinational Enterprises and tax authorities (“2010 Guide”)，regularly publish the various studies on transfer pricing in loose-leaf form.All of these reports recommend the adoption of arm’s length principle,In particular,this principle was reaffirmed in the latest Guide of 2010.OECD made such a provision for arm’s length principle in the 1979 report：“In determining whether a transfer price conforms to arm’s length principle,it is best to refer directly to Bryant’s trading price between independent firms or between conglomerates and non-affiliated companies.” But this is clearly not the definition of arm’s length principle.OECD “In 1995,the Guide found，Article 9 of the OECD Model tax Agreement is an authoritative exposition of “arm’s length principle”：“(When) the relationship between business or financial relations between two (associated) enterprises is different from the relationship between independent enterprises，Then,anything that should have been acquired by one of the enterprises，however,profits not obtained as a result of these circumstances may be included in the profits of the enterprise and shall be taxed accordingly”?！?〕

Foreign scholars have made a summary of the process of transplanting arm’s length principle from the domestic law of the United States to other countries:from the model tax treaty and related documents (such as the OECD transfer pricing Guide) to the tax treaty law,and then from the tax treaty law to the domestic law of each country.〔7〕In other words,the worldwide migration of length principle is a top-down transplant dynamic process,that is,it is first absorbed by bilateral tax agreements signed between countries,and then gradually infiltrated into the domestic tax laws of more and more countries by the promotion of the growing network of tax agreements.For example,South Korea and Japan signed the first double Taxation Convention in 1970.Referring to the provisions of OECD and article 9 of the United Nations model tax treaty,the transfer pricing clause of article 8 of the agreement is designed,which includes arm’s length principle.South Korea has since signed bilateral tax treaties with other countries with similar provisions.In late 1980s,with the rapid opening and growth of the Korean economy,multinational corporations make use of the phenomenon of arbitrary manipulation of transfer pricing in cross-border transactions by their overseas affiliated enterprises,and intend to continuously erode the tax base through price manipulation in order to achieve the goal of reducing the overall tax burden of enterprises.To curb such cases,the South Korean government amended article 46 of the Corporate Income Tax Act in end of 1988.The transfer pricing tax system,which can regulate and adjust cross-border transactions,has been formally established in South Korea’s domestic law.〔8〕Major market economies with similar experience with South Korea include Australia,China,Germany,Japan,Russia,Singapore,Spain and the United Kingdom.It is important to note that there are exceptions to this top-down transplant process,such as Argentina and Chile.The transplant of Arm’s length principle in both countries was a bottom-up,one that was first absorbed by the two countries’ domestic laws and then adopted by bilateral tax treaties.〔9〕So far,OECD members and non member countries have mainly signed the arm ’s length principle in signing bilateral tax treaties and formulating their domestic transfer pricing rules,which further consolidate the core position of the principle in the global transfer pricing standard.

Ⅲ.The development dilemma of traditional arm’s length principle and the change of its Application method

An important prerequisite for arm’s length principle is to find comparable transactions and determine fair trade prices.To determine whether a multinational affiliate’s intra-firm transaction meets arm’s length principle,it is only necessary to compare the price of the transaction with the normal price in the comparable transaction.In the era when related party transactions are mainly aimed at tangible assets,it is easy to determine the applicability of length principle for comparable transactions and fair transactions,which is specific and predictable.With the increasing frequency of electronic commerce and intangible assets transactions among multinational affiliated enterprises,the object of related party transactions has gradually shifted from tangible assets to intangible assets,because of the uniqueness of the intangible assets themselves and the uncertainty of their value,the difficulty of finding comparable and fair trade prices in the open market is multiplying,and the applicability of length principle is therefore blurred,generalized and unpredictable.Disputes between multinational taxpayers and tax authorities are frequent.

1.Traditional arm’s length principle — a self-enforcing rule of law

Prior to the beginning of 1970s,intra-firm transactions among multinational affiliates were mainly aimed at the sale and use of tangible property (including leasing,leasing hire and leased purchase of hire).Compared with intangible assets,tangible property is characterized by its general involvement in raw materials,production of products,processing and sales,etc.,and the value of raw materials,the function and value contribution of each link,such as production,processing and sale of products,etc.The function and use value of the product have relative certainty,so it also has certain comparability.〔10〕In fact,this is the basis on which traditional arm’s length principle can self-enforcing.〔11〕Where there is a comparable unregulated transaction in a comparable environment,the application of the armors length principle is relatively clear,specific and deterministic,and it can effectively regulate transfer pricing without controversy.Therefore,effective self-implementation can be obtained without the help of third-party implementation mechanism.

Both taxpayers and tax authorities can adequately compare affiliated transactions with non-affiliated transactions as a reference in order to find the most comparable non-affiliated transactions compared to those tested,and then make use of the independent trading methods set out in the OECD transfer pricing guidelines.That is comparable uncontrolled price method,re-sale price method and cost plus method，determine the price (profit) level that conforms to arm’s length principle.The comparable uncontrolled pricing method takes the price charged by the same or similar business activity between the non-affiliated enterprises as the fair transaction price of the affiliated transaction.The resale price method takes the price of the goods purchased from the related party and then sold to the non-affiliated party as the fair transaction price of the goods purchased from the related party,less the gross profit of the comparable non-affiliated party.The cost addition method takes the reasonable cost of the related party transaction and the comparable non-affiliated transaction gross profit as the fair transaction price of the related party transaction.These three methods are the most direct way to test whether the commercial and financial conditions in related party transactions conform to independent transactions.Because the price difference between any controlled transaction and comparable non-controlled transaction can be traced directly to the business and financial relationship between the enterprises,take the price of the related party directly instead of the related transaction price,which can make the related transactions conform to arm ’s length principle.simply and effectively.〔12〕

Facts have proved that since 1934,arm’s length principle has been formally accepted as the criterion for adjusting transfer pricing behavior by American domestic law.Until 1973,none of the tax disputes between U.S.taxpayers and tax authorities over transfer pricing were caused by the difficulty of finding comparable deals or determining fair trade prices.〔13〕Other major countries in the international community during the same period,like the United States,did not have any tax disputes over transfer pricing caused by these reasons.〔14〕

2.The development dilemma of arm’s length principle

Theoretically,it is easy to regulate transfer pricing with arm’s length principle.However,in practice,once there is no comparable trade in the open market,or if the independent trading price is difficult or undetectable,then arm’s length principle will be difficult to apply.

First of all,with the continuous expansion of transnational corporations’ business scale and the complexity of their business methods,the factors that need to be considered to affect comparability are also gradually increasing when looking for comparable independent enterprise transactions.The OECD transfer pricing Guide (2010) makes the following list：These elements include the nature of the transaction of goods or services,the functions performed by the parties to the transaction (taking into account the assets used and the risks assumed),the terms of the contract,the economic environment and the business strategy of the parties to the transaction.〔15〕The more elements involved,the more limited comparable transactions are available to businesses and tax authorities.

Secondly,the products traded within multinational affiliated enterprises are often unique products that cannot be purchased on the open market,if the licensing of high-value intangible assets and the provision of special services were to find comparable transactions in the market,it was sometimes impossible,the dispute between taxpayers and tax authorities about adjusting transfer pricing also often stems from this.

Thirdly,the determination of comparable transactions and fair prices needs the support of massive tax information,while multinational taxpayers are often the main holders of tax information,which has a natural conflict with the tax authorities in the provision and acquisition of tax information.Multinational taxpayers want to provide information as little as possible,the tax authorities hope the more,the better.In this situation of serious asymmetry of information,the two parties often have serious differences on the final determination of comparable transactions or fair prices.

Finally,arm’s length principle isolated the organizations and highly integrated affiliated enterprises from each other and ignored the economies of scale of multinational enterprises to find comparable transactions and determine normal prices and profit distribution.This is clearly incompatible with the economic nature of multinational companies,whereby comparable or fair transaction prices are often arbitrary or impractical.

3.Update of arm’s length principle on applicable methods

In early 1970s,with the increasing frequency of e-commerce and intangible asset transactions,the above difficulties of length principle are gradually aggravated.Although all countries have accepted the three traditional methods of determining fair trade prices,according to the statistics of General Accounting Office (GAO) in the early 1990s,more than 90% of the cases in the world are unable to apply these three methods because of their inability to find comparable transactions.〔16〕In the face of the dilemma that arm’s length principle cannot avoid,some countries,represented by the United States,have reformed the traditional transfer pricing tax system.On the premise of continuing to adhere to arm’s length principle,new methods and measures applied to this principle are studied and formulated,including comparable profit method,profit division method and transaction net profit method.

The main difference between the traditional method and the new method lies in the choice of the comparable object-price or profit.By comparing the internal transaction price with the normal transaction price of independent enterprise,the former judges whether the transfer price should be adjusted,and then adjusts the taxable income；The latter,on the contrast,adjusts the taxable income of affiliated enterprises by comparing the profit level of normal transaction of independent enterprises,thus proves the rationality and necessity of price adjustment of transfer pricing,and avoids the difficulty of finding comparable transaction price.〔17〕At the same time,the United States transfer pricing Act of 1994〔18〕also has flexible and flexible handling of the requirements of the comparability of the transaction,that is,on the one hand,there is no requirement that comparable transactions and internal transactions be completely “identical”,On the other hand,it is necessary to relax the requirement of comparable trading factors,and consider the non-completely comparable trading factors comprehensively,and then carry on the appropriate adjustments to get the results that meet the requirements.

At present,tax authorities in many countries have adopted both the traditional and new methods when dealing with transfer pricing in order to make tax adjustment more flexible and effective.Although the new method has improved to a certain extent compared with the traditional way to arm ’s length principle,it still can’t solve the problem of finding comparable transaction difficulty,because the two kinds of methods have a common application premise,that is,comparable transactions exist.Once faced with internal trading of unique,non-comparable products such as intangible assets,special services,and so on,the traditional arm’s length principle has no chance to display its talent.

Ⅳ.The evolution of legal attributes of modern arm’s length principle

The increasingly active trading of intangible assets in multinational corporations is the important reason for the evolution of the legal attributes of arm’s length principle.The special property of intangible assets makes the application of traditional arm’s length principle more difficult,and it is more complex in finding comparable objects and evaluating value.In this context,the global formula distribution method came into being.Some scholars in international tax law even propose to use the global formula distribution method instead of arm’s length principle to solve the transfer pricing problem of affiliated enterprises.Despite the scepticism,the OECD has affirmed the core standard of arm’s length principle in its latest transfer pricing guidelines(2010).At the same time,it also fully realized that the emergence of many exogenous factors in the process of economic development,such as the prosperity of international intangible assets transaction,has substantially changed the basic content of arm’s length principle,and its self-implementation characteristics have also suffered a serious impact.That is to say,the name of arm’s length principle has not changed,but its legal attribute has changed materially.

1.From normative legal rules to standard legal rules

According to the division of Zhang Wenxian,legal rules can be divided into two categories:normative legal rules to standard legal rules.Normative legal rules refer to standard legal rules that are clear,definite and specific,and can be directly applied,while standard rules refer to some or all of the contents of legal rules (factual status,rights,obligations,consequences,etc.),which are flexible,must be explained to be applicable and at the appropriate discretion.〔19〕For example,a speed limit of 100 yuan for violators is a “rule”,and requiring drivers to “drive with caution” should be considered a “standard”.〔20〕It can be seen that both normative legal rules and standard legal rules can be called “rules”,but the difference between them is obvious,but the difference between the two is also obvious,Normative legal rules is the kind of legal device that assigns certain,specific legal consequences one by one to a similar,specific state of legal fact,〔21〕as a result,judicial discretion is less.And standard legal rules is a yardstick that people have to abide by when they do a legal act,“without which a person is liable for the damage caused,or makes his act legally null and void.” It is “not as absolute in its application as the rule of law is,but applied according to the specific circumstances of each case”,〔22〕therefore,there are many judicial discretion factors.

Although there are differences between Normative legal rules and standard legal rules in terms of normative content and judicial discretion,they can be transformed into each other.General standards can evolve into concrete norms,the converse is also true.For example,the concept of “good faith” in United States contract law originally belonged to standard legal rules,the meaning and content of which could not be determined ex ante and could only be clarified on the basis of the circumstances of its application.However,with the increasing application of the standard,the concept of “good faith” has gradually become clearer and more specific.Its normative content is also increasingly precise,and the legal attribute has also changed from standard legal rules to normative legal rules.〔23〕On the other hand,the evolution of arm’s length principle is quite the opposite.Before the beginning of 1970s,it belongs to normative legal rules that can be self-enforcing.Because at that time,most transactions between affiliated enterprises involved general commodity trading and money borrowing,it was easy for tax authorities to find comparable transactions between independent enterprises,thus finding normal transaction prices.Therefore,the content of arm’s length principle is clear,specific and definite,and can be implemented effectively without the third party implementation mechanism.However,with the rising of international intangible assets,labor services,e-commerce and other aspects of transactions,it is becoming more and more difficult to find comparable transactions and determine the normal transaction prices.The content of arm’s length principle is also increasingly uncertain,with taxpayers and tax authorities often in dispute over finding comparable deals or determining fair trade prices,requiring a third-party enforcement mechanism to make a fair decision.This is described in the 2010 OECD transfer pricing Guide：“The application of arm’s length principle may be a fact-intensive process and requires correct and appropriate referees.It can show a high degree of uncertainty and impose heavy compliance costs and administrative burdens on taxpayers and tax authorities.”〔24〕This shows that fair trade is embodied in the essence of length principle.The essence of normal transaction has gradually become a yardstick for tax authorities to judge whether transfer pricing needs tax adjustment.Its legal attributes have gradually changed from self-enforcing normative legal rules to general,unpredictable standard legal rules.

2.Typical representation of the evolution of legal attributes:the integration of arm ’s length principle and global formula distribution method

When the transfer pricing behavior of transnational corporations was mainly aimed at tangible property transactions, the application of traditional arm’s length principle is clear, specific and predictable;However, when the object of the transfer pricing behavior turns to the intangible asset transaction, the dilemma of the traditional arm’s length principle becomes more and more serious. In this context, in addition to the continuous updating of the applicable methods, the legal attributes of arm’s length length principle have also undergone the evolution from normative legal rules to standard legal rules, which further strengthens the global core standard status of arm’s length principle in the transfer pricing system.

In fact,the main purpose of applying arm’s length principle to taxpayers and tax authorities is to determine fair trade prices.When arm’s length principle can implement itself and the content is clear,taxpayers and tax authorities generally use the above independent trading method to carry out comparability analysis of comparable transactions and obtain fair trade prices；When arm’s length principle is unable to implement itself and changes from normative legal rules to standard legal rules,the relationship between independent trading and global formula allocation is no longer as incongruous as it used to be.Regardless of the use of any method of determining the transaction price or profits of the enterprise,and whether or not comparable transactions exist,so long as the final result is consistent with the spirit of fair dealing,that is,in the same or similar circumstances as that of an unrelated enterprise,then,they all belong to the category of arm’s length principle.That is,even a similar formula distribution method,or even a direct formula allocation method,may be consistent with the arm’s length principle,as long as the results are consistent with the results of independent transactions by non-affiliated firms.Therefore,the transformed arm’s length principle is no longer just a method to calculate the taxable income or profit of affiliated enterprises,but also a legal standard to judge whether the calculation results conform to the spirit of fair and independent transaction.

As mentioned earlier,in order to effectively standardize the intangible assets transfer pricing problem and break through the dilemma of traditional arm’s length principle,The United States took the lead in introducing the comparable profit law and the profit division method in its domestic law,which are no longer strictly independent trading methods in essence.In particular,the profit division method,it is generally applicable in the case of no comparable parameters.It does not depend on comparable prices or comparable profit levels because it does not take into account differences in transactions between affiliated and independent firms.When the trade-based method can not be implemented,the due profits can be reasonably distributed according to the different functions of the affiliated enterprises.It can be said that the profit-sharing method is essentially the same as the global formula distribution method.But the final allocation must conform to the arm’s length principle.Therefore,some scholars believe that the global formula distribution method is likely to be in line with the provisions of article 9 of the OECD model tax treaty,and needs to be concerned about the transaction prices of non-affiliated enterprises under the same circumstances,as long as the transfer price determined by the formula distribution method conforms to the arm’s length principle,〔25〕even senior tax officials in OECD member states argue that armsiness length principle is essentially no different from global formula allocation,but that they are only semantically different.〔26〕

Ⅴ.Conclusion

Arm’s length principle is the most accepted international tax regulation by sovereign states,international organizations and taxpayers.The results of Ernst & Young International Accounting firm’s 2013 global transfer pricing survey confirmed that all countries have committed themselves to arm’s length principles through bilateral tax treaties or domestic legislation.〔27〕Since its inception and development,the length principle has not always remained unchanged.In addition to gradually absorbing the essence of the global publicity distribution law in its application,the legal attributes of the principle have also undergone a major transformation from normative legal rules to standard legal rules.That is one of the most important reasons why it remains an irreplaceable global core standard in transfer pricing today.

References:

〔1〕See OECD Guidelines 2010,pp.2-31.

〔2〕Liu Yongwei, Research on the Legal Issues of Transfer Pricing,Beijing:Peking University Press,2004,p.27.

〔3〕Ceteris, Guide to International Transfer Pricing:Law,Tax Planning and Compliance Strategies,Kluwer Law International BV,2010,The Netherlands,Overview/Best Practices,p.5.

〔4〕Revenue Act of 1934,§45.

〔5〕〔U.S.A〕Reuven S.Avi-Yonah, International Tax as International Law:an Alysis of the International Tax Regime,Xiong Wei translated,Beijing:Law Press,2008,p.98.

〔6〕OECD Guidelines:Chapter Ⅰ,p.1.6-1.14.

〔7〕Eduardo Baistrocchi,Lan Eoxan, Resolving Transfer Pricing Disputes:a Global Analysis,Cambridge University Press,2012,p.858.

〔8〕〔9〕Edited by Eduardo Baistrocchi,Lan Eoxan, Resolving Transfer Pricing Disputes:a Global Analysis,Cambridge University Press 2012,pp.440,858-860.

〔10〕Liu Yongwei, Study on Legal Issues of Transfer Pricing,Beijing:Peking University Press,2004,p.29.

〔11〕According to North,the enforcement of the rules is mainly embodied in three aspects,that is,the third party (the enforcement of the law),the second party (revenge) and the first party (conduct self-discipline).Among them,the latter two constitute the self-enforcement mechanism of the rules,and the self-enforcement theory of the rules.See 〔U.S.A〕Edited by Douglas C.North.,Hang Hang translated,Weson revised: System,Institutional change and Economic performance,Shanghai:Ge Zhi Publishing House,Shanghai Sanlian Bookstore,Shanghai People’s Publishing House,2008.

〔12〕Zhang Zeping, International Tax Law,Beijing:Peking University Press,2014,p.191.

〔13〕Edited by Eduardo Baistrocchi and Ian Eoxan, Resolving Transfer Pricing Disputes:a Global Analysis,Cambridge University Press,2012,pp.860.

〔14〕These countries include Canada,Germany,Spain,the United Kingdom,Australia,Japan,South Korea,Singapore,Brazil,Russia,India,Argentina,Chile,Israel,the European Community,etc.

〔15〕OECD Guidelines 2010,para.2.134-2.135.

〔16〕General Accounting Office,International Taxation Problems Persist in Determining Tax Effects of Intercompany Prices,GAO/GGD 92-89,1992.

〔17〕Editor in chief of Liao Yixin,Zhu Yansheng,Deputy Editor-in-Chief, International Tax Law,Beijing:Higher Education Press,2008,p.295.

〔18〕The transfer pricing Act of 1994 actually refers to the final Act of 1994 in article 482 of the American Internal Revenue Code,which is referred to as the transfer pricing Act of 1994.

〔19〕Zhang Wenxian, Jurisprudence,Beijing:Higher Education Press,Peking University Press,1999,p.254.

〔20〕〔Germany〕Schaeffer, Application of Rules and Standards in Developing Countries — A Major Practical Issue in the March Towards the Rule of Law,Li Chenggang translated,Law Review,2001,p.143.

〔21〕Yao Jianzong,On the Construction of Legal System, Journal of Social Sciences,Jilin University,1996(5),p.24.

〔22〕〔U.S.A〕Roscoe Pound, Social Control Through Law:Legal Task,Beijing:The Commercial Press,1984,p.35.

〔23〕L.Kaplow, Rules Versus Standards:an Economic Analysis,1992,42,Duke Law Journal,557,p.482.

〔24〕OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations,Paris:OECD,2010,para.4.93.The OECD Guidelines are available at http://www.oecd.org/daf/inv/mne/transfer-pricing-guidelines.htm.

〔25〕Reuven S.Avi-Yonah, Between Formulary Apportionment and the OECD Guidelines:a Proposal for Reconciliation,p.2,Law & Economics Working Papers,2009,University of Michigan Law School,available at http://repository.law.umich.edu/law econ archive/art102.

〔26〕Brian J.Arnold,Thomas E.McDonnell, Report on the Invitational Conference on Transfer Pricing:the Allocation of Income and Expenses Among Countries,Tax Notes.13 December,1993,pp.1377-1381.

〔27〕EY,Navigating the Choppy Waters of International Tax:2013 Global Transfer Pricing Survey,2013.http://www.ey.com/GL/en/Services/Tax/2013-Global-Transfer-Pricing-Survey.