Contents - AL-Tax

48 3 Overview and Critique of Existing Transfer Pricing Methodsdeveloper (or, if different, the legal owner) of these controls and systems shouldbe treated as the owner for transfer pricing purposes. A reputation for reliability may have originated with a single trading location,or it may be a natural outgrowth of the integrated operation. In the first case,the single trading location should be deemed to own the goodwill intangible. Inthe second case, goodwill should not be used to allocate income across tradinglocations, inasmuch as it is jointly developed and owned.3.7.5 Summary and Practical ImplicationsIn summary, the proposed global dealing regulations and Notice 94–40, takentogether, constitute an attempt to address situations in which individual group memberscoordinate very closely and perform the same or closely similar functions.Under these circumstances, many practitioners and tax policy-makers believe that aseparate entity approach is infeasible. While the general principle that each groupmember’s share of profits should reflect its relative contributions to the generationof such profit is sound, the measures of both profit and contributions vary from onecase to the next, and have no real economic basis. As such, the results produced byformulary apportionment methods are arbitrary. The use of (a) after-tax free cashflows in lieu of accounting measures of profit, (b) assets in lieu of factors, and (c)fair market values in lieu of weights, would significantly improve on the formularyapportionment approach, and may also be preferable to a separate entity approach.