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The arm’s length principle embodied in the Transfer Pricing Guidelines contributes to achieving a fair allocation of a multinational enterprise’s tax base among countries in which it operates, based on economic analysis, functions, risks and assets involved in the process. In the meantime, this internationally accepted standard provides a stable environment to investors and limits the risk of double taxation that could arise if countries applied differing standards. Developing countries which implement the arm’s length principle see it as a powerful tool to promote the positive development contribution of multinational enterprises by ensuring that an appropriate amount of tax is paid.

Immigration policies are controversial, but PCD implies that the development implications need to be considered alongside other arguments. FOSTERING DEVELOPMENT IN A GLOBAL ECONOMY – ISBN 92-64-01014-9 © OECD 2005 45 Knowledge transfer, the global commons, and global externalities Movement of people and capital is an important conduit for knowledge and technology transfer. Intellectual property (IP) policy is also important. The advantages and disadvantages of patent protection and its optimal length are well known, and require negotiation and agreement on the appropriate balance between rewarding innovation and spreading the benefits of innovation.

20. Anti-corruption legislation must be co-ordinated because unilateral action by an individual OECD country against businesses engaging in corrupt practices in foreign countries will be met by the response that the businesses’ competitors gain competitive edge by getting away with such practices. 21. The distinction between temporary and permanent migration is often harder to enforce in practice than on paper, because we are dealing with people. Temporary workers may become entranced by their new residence or by one of its residents, and then repatriation at the end of the work contract may involve breaking up families.

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