The Arm's Length Principle vs the Global Tariff Approach: Determining Which is Better for Realising the SDGs

Firmansyah H.S.; Reza Adrinata

doi:10.31092/jpkn.v7i1.3420

Authors

Firmansyah H.S. Banda Aceh Tax Office
Reza Adrinata Banda Aceh Tax Office

DOI:

https://doi.org/10.31092/jpkn.v7i1.3420

Keywords:

Arm's Length Principle, Global Tariff Approach, Transfer Pricing, International Tax, SDGs, Global Minimum Tax

Abstract

Amid the increasing complexity of the global economy and the pressure to create a fair and sustainable tax system, the debate between the Arm's Length Principle (ALP) and the Global Tariff Approach (GTA) is increasingly relevant. This study comparatively analyses these two key principles in international tax law with a focus on their effectiveness, implementation challenges, and contribution to the achievement of the Sustainable Development Goals (SDGs). ALP, which is based on market price comparisons between independent entities, is predominantly used globally but poses major challenges in developing countries due to limited data and administrative capacity. In contrast, the GTA and its instruments such as the Global Minimum Tax (GMT) offer a simpler and structurally fair systemic approach. Through case studies of the United States, the European Union, India, and Indonesia, this article shows that the effectiveness of each principle depends heavily on a country's institutional capacity and bargaining position in multilateral forums. The analysis shows that the GTA, although still in the global consolidation stage, has greater potential in supporting fiscal justice and long-term fiscal sustainability. This study recommends strengthening the capacity of developing countries, adaptive domestic legal reforms, and support for more inclusive global tax governance as keys to the successful implementation of pro-SDGs international tax principles.

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