Arm’s length pricing and multinational banks : an old fashioned approach in a modern world

In “Arm’s Length Pricing and Multinational Banks: An Old Fashioned Approach in a Modern World”, Kerrie Sadiq, describes the high level of integration of multinational financial institutions and argues that treating each element within a given operation as a separate entity for transfer pricing purposes is not economically or legally realistic. She proposes instead formulary apportionment as a device for managing this complexity.

A nation’s role in addressing base erosion and profit shifting : balancing sovereignty with international collaboration and coordination

The notion of sovereignty is central to any international tax issue. While a nation is free to design its tax laws as it sees fit and raise revenue in accordance with the needs of its citizens, it is not possible to undertake such a task in isolation. In a world of cross-border investments and business transactions, all tax regimes impact on one another. Tax interactions between sovereign states cannot be avoided. Ultimately, the interactions mean that a nation must decide whether to engage in both collaboration and coordination with other nations and supranational bodies alike or maintain an individualised stance in relation to its tax policy. Whatever the decision, there is arguably an exercise in national sovereignty in some form. In the context of an international tax regime, whether that regime is interpreted broadly as meaning international norms generally adopted by nations around the world or domestic regimes legislating for cross-border transactions, rhetoric around national fiscal sovereignty takes on many different forms. At one end of the spectrum it is relied upon by financial secrecy jurisdictions (tax havens) as a defence to their position on the basis that ‘other’ nations cannot interfere with the fiscal sovereignty of a jurisdiction. At the other end of the spectrum, it is argued that profit shifting and international tax avoidance if not stopped is, in and of itself, a threat to a nation’s fiscal sovereignty on the basis that it threatens the ability to tax and raise the revenue needed. This paper considers a modern conceptualisation of sovereignty along with its role within international tax coordination and collaboration to argue that a move towards a more unified approach to addressing international base erosion and profit shifting may be the ultimate exercise of national fiscal sovereignty. By using the current transfer pricing regime as a case study, this paper posits that it is not merely enough to have international agreement on allocation rules to be applied, but that the ultimate exercise of national sovereignty is political agreement with other states to ensure that it is governments which determine the allocational basis of worldwide profits to be taxed. In doing so, it is demonstrated that the arm’s length pricing requirement of the current transfer pricing regime, rather than providing governments with the ability to determine the location of profits, is providing multinational entities with the ultimate power to determine that location. If left unchecked, this will eventually erode a nation’s ability to capture the required tax revenue and, as a consequence, may be deemed a failure by nation states to exercise their fiscal sovereignty.

Transfer pricing and multinational financial institutions : the case for replacing arm’s length price with a unitary approach

The international tax system, designed a century ago, has not kept pace with the modern multinational entity rendering it ineffective in taxing many modern businesses according to economic activity. One of those modern multinational entities is the multinational financial institution (MNFI). The recent global financial crisis provides a particularly relevant and significant example of the failure of the current system on a global scale. The modern MNFI is increasingly undertaking more globalised and complex trading operations. A primary reason for the globalisation of financial institutions is that they typically ‘follow-the-customer’ into jurisdictions where international capital and international investors are required. The International Monetary Fund (IMF) recently reported that from 1995-2009, foreign bank presence in developing countries grew by 122 per cent. The same study indicates that foreign banks have a 20 per cent market share in OECD countries and 50 per cent in emerging markets and developing countries. Hence, most significant is that fact that MNFIs are increasingly undertaking an intermediary role in developing economies where they are financing core business activities such as mining and tourism. IMF analysis also suggests that in the future, foreign bank expansion will be greatest in emerging economies. The difficulties for developing countries in applying current international tax rules, especially the current traditional transfer pricing regime, are particularly acute in relation to MNFIs, which are the biggest users of tax havens and offshore finance. This paper investigates whether a unitary taxation approach which reflects economic reality would more easily and effectively ensure that the profits of MNFIs are taxed in the jurisdictions which give rise to those profits. It has previously been argued that the uniqueness of MNFIs results in a failure of the current system to accurately allocate profits and that unitary tax as an alternative could provide a sounder allocation model for international tax purposes. This paper goes a step further, and examines the practicalities of the implementation of unitary taxation for MNFIs in terms of the key components of such a regime, along with their their implications. This paper adopts a two-step approach in considering the implications of unitary taxation as a means of improved corporate tax coordination which requires international acceptance and agreement. First, the definitional issues of the unitary MNFI are examined and second, an appropriate allocation formula for this sector is investigated. To achieve this, the paper asks first, how the financial sector should be defined for the purposes of unitary taxation and what should constitute a unitary business for that sector and second, what is the ‘best practice’ model of an allocation formula for the purposes of the apportionment of the profits of the unitary business of a financial institution.

Temporal trends and bioavailability assessment of heavy metals in the sediments of Deception Bay, Queensland, Australia

Thirteen sites in Deception Bay, Queensland, Australia were sampled three times over a period of 7 months and assessed for contamination by a range of heavy metals, primarily As, Cd, Cr, Cu, Pb and Hg. Fraction analysis, enrichment factors and Principal Components Analysis-Absolute Principal Component Scores (PCA-APCS) analysis were conducted in order to identify the potential bioavailability of these elements of concern and their sources. Hg and Te were identified as the elements of highest enrichment in Deception Bay while marine sediments, shipping and antifouling agents were identified as the sources of the Weak acid Extractable Metals (WE-M), with antifouling agents showing long residence time for mercury contamination. This has significant implications for the future of monitoring and regulation of heavy metal contamination within Deception Bay.

Source characterisation of urban road surface pollutants for enhanced water quality predictions

This study developed a comprehensive research methodology for identification and quantification of sources responsible for pollutant build-up and wash-off from urban road surfaces. The study identified soil and asphalt wear, and non-combusted diesel fuel as the most influential sources for metal and hydrocarbon pollution respectively. The study also developed mathematical models to relate contributions from identified sources to underlying site specific factors such as land use and traffic. Developed mathematical model will play a key role in urban planning practices, enabling the implementation of effective water pollution control strategies.

Investigation into chemistry of new particle formation and growth in subtropical urban environment

The role of different chemical compounds, particularly organics, involved in the new particle formation (NPF) and its consequent growth are not fully understood. Therefore, this study was conducted to investigate the chemistry of aerosol particles during NPF events in an urban subtropical environment. Aerosol chemical composition was measured along with particle number size distribution (PNSD) and several other air quality parameters at five sites across an urban subtropical environment. An Aerodyne compact Time-of-Flight Aerosol Mass Spectrometer (c-TOF-AMS) and a TSI Scanning Mobility Particle Sizer (SMPS) measured aerosol chemical composition and PNSD, respectively. Five NPF events, with growth rates in the range 3.3-4.6 nm, were detected at two sites. The NPF events happened on relatively warmer days with lower humidity and higher solar radiation. Temporal percent fractions of nitrate, sulphate, ammonium and organics were modelled using the Generalised Additive Model (GAM), with a basis of penalised spline. Percent fractions of organics increased after the NPF events, while the mass fraction of ammonium and sulphate decreased. This uncovered the important role of organics in the growth of newly formed particles. Three organic markers, factors f43, f44 and f57, were calculated and the f44 vs f43 trends were compared between nucleation and non-nucleation days. f44 vs f43 followed a different pattern on nucleation days compared to non-nucleation days, whereby f43 decreased for vehicle emission generated particles, while both f44 and f43 decreased for NPF generated particles. It was found for the first time that vehicle generated and newly formed particles cluster in different locations on f44 vs f43 plot and this finding can be used as a tool for source apportionment of measured particles.

Assessment of volatile organic compounds in urban schools

There is an increased concern about airborne particles not only because of their environmental effects, but also due to their potential adverse health effects on humans, especially children. Despite the growing evidence of airborne particles having an impact on children’s health, there have been limited studies investigating the long term health effects as well as the chemical composition of ambient air which further helps in determining their toxicity. Therefore, a systematic study on the chemical composition of air in school environment has been carried out in Brisbane, which is known as “Ultrafine Particles from Traffic Emissions on Children’s Health” (UPTECH). This study is also a part of the larger project focusing on analysis of the chemical composition of ambient air, as well as source apportionment and the quantification of ambient concentrations of organic pollutants in the vicinity of schools. However, this particular paper presents some of the results on concentration of different Volatile Organic Compounds in both indoor and outdoor location from different schools. The database consisted of 750 samples (500 outdoor and 250 indoor) collected for VOCs at 25 different schools. The sampling and analysis were conducted following the standard methods. A total of 90 individual VOCs were identified from the schools studied. Compounds such as toluene, acetic acid, nonanal, benzaldehyde, 2- ethyl 1- hexanol, limonene were the most common in indoors whereas isopentane, toluene, hexane, heptane were dominant in outdoors. The indoor/ outdoor ratio of average sum of VOCs were found to be more than one in most of the schools indicating that there might be additional indoor sources along with the outdoor air in those schools. However, further expansion of the study in relation to source apportionment, correlating with traffic and meteorological data is in progress.

Unitary Taxation of the Finance Sector

Multinational financial institutions (MNFIs) play a significant role in financing the activities of their clients in developing nations. Consistent with the ‘follow-the-customer’ phenomenon which explains financial institution expansion, these entities are increasingly profiting from activities associated with this growing market. However, not only are MNFIs persistent users of tax havens, but also, more than other industries, have the opportunity to reduce tax through transfer pricing measures. This paper establishes a case for an industry-specific adoption of unitary taxation with formulary apportionment as a viable alternative to the current regime. In doing so, it considers the practicalities of implementing this by examining both definitional issues and possible formulas for MNFIs. This paper argues that, while there would be implementation difficulties to overcome, the current domestic models of formulary apportionment provide important guidance as to how the unitary business and business activities of MNFIs should be defined, as well as the factors that should be included in an allocation formula, and the appropriate weighting. This paper concludes that unitary taxation with formulary apportionment is a viable industry-specific alternative for MNFIs.

Heavy metals in the sediments of Northern Moreton Bay, Queensland, Australia

This project was the first comprehensive assessment of heavy metals to be conducted in the sediments of Northern Moreton Bay since the 1970s and found that shipping and shipping related activities contributed significantly to the level of sediment contamination in the area. The study was also used to develop and test new methods of assessing heavy metal sediment quality.

Insights into the growth of newly formed particles in a subtropical urban environment

The role of different chemical compounds, particularly organics, involved in the new particle formation (NPF) and its consequent growth are not fully understood. Therefore, this study was conducted to investigate the chemical composition of aerosol particles during NPF events in an urban subtropical environment. Aerosol chemical composition was measured along with particle number size distribution (PNSD) and several other air quality parameters at five sites across an urban subtropical environment. An Aerodyne compact Time-of-Flight Aerosol Mass Spectrometer (c-TOF-AMS) and a TSI Scanning Mobility Particle Sizer (SMPS) measured aerosol chemical composition (particles above 50 nm in vacuum aerodynamic diameter) and PNSD (particles within 9-414 nm in mobility diameter), respectively. Five NPF events, with growth rates in the range 3.3-4.6 nm, were detected at two of the sites. The NPF events happened on relatively warmer days with lower condensation sink (CS). Temporal percent fractions of organics increased after the particles grew enough to have a significant contribution to particles volume, while the mass fraction of ammonium and sulphate decreased. This uncovered the important role of organics in the growth of newly formed particles. Three organic markers, factors f43, f44 and f57, were calculated and the f44 vs f43 trends were compared between nucleation and non-nucleation days. K-means cluster analysis was performed on f44 vs f43 data and it was found that they follow different patterns on nucleation days compared to non-nucleation days, whereby f43 decreased for vehicle emission generated particles, while both f44 and f43 decreased for NPF generated particles. It was found for the first time that vehicle generated and newly formed particles cluster in different locations on f44 vs f43 plot and this finding can be potentially used as a tool for source apportionment of measured particles.

The ambient aerosol characterization during the prescribed bushfire season in Brisbane 2013

Prescribed burnings are conducted in Queensland each year from August until November aiming to decrease the impact of bushfire hazards and maintain the health of vegetation. This study reports chemical characteristics of the ambient aerosol, with a focus on source apportionment of the organic aerosol (OA)fraction, during the prescribed biomass burning (BB) season in Brisbane 2013. All measurements were conducted within the International Laboratory for Air Quality and Health (ILAQH) located in Brisbane’s Central Business District. Chemical composition, degree of ageing and the influence of BB emission on the air quality of central Brisbane were characterized using a compact Time of Flight Aerosol Mass Spectrometer (cToF-AMS). AMS loadings were dominated by OA (64 %), followed by, sulfate (17 %), ammonium (14 %) and nitrates (5 %). Source apportionment was applied on the AMS OA mass spectra via the multilinear engine solver (ME-2) implementation within the recently developed Source Finder (SoFi) interface. Six factors were extracted including hydrocarbon-like OA (HOA), cooking-related OA (COA), biomass burning OA (BBOA), low-volatility oxygenated OA (LV-OOA), semivolatile oxygenated OA (SV-OOA), and nitrogen-enriched OA (NOA). The aerosol fraction that was attributed to BB factor was 9 %, on average over the sampling period. The high proportion of oxygenated OA (72 %), typically representing aged emissions, could possess a fraction of oxygenated species transformed from BB components on their way to the sampling site.