Cloud Computing and Cross-Border Transfer Pricing: Implications of Recent OECD and Australi-an Transfer Pricing Laws on Cloud related Multinational Enterprises and Possible Solutions

Cloud computing has significantly changed the way in which information is collected, stored, handled and distributed by individuals, businesses and government agencies. Like many other technology developments, Cloud computing brings us both oppor-tunities and risks. Cloud computing poses significant and difficult questions in tax laws, particularly in the cross-border tax area. As an increasing number of businesses move to cloud computing solu-tions, items we view as tangible products are transformed into in-tangible or digital products. This arguably brings significant chal-lenges to the traditional tax system, which was established on the basis of physical transactions and trade. In international tax, Transfer Pricing is certainly “one of the most important issues.”1 An increasing number of multinational enterprises, particularly the U.S. I.T. Giants, artificially shift profits from high-tax to low-tax countries by a variety of techniques. A study conducted by the U.S. Congressional Research Service in 2015 indicates a significant in-crease in corporate profit shifting over the past several years, and estimates losses from income shifting by multinational corporations are estimated at nearly $100 billion USD per year. This article ex-amines whether and how traditional tax rules on Transfer Pricing, which have their foundations in physical transactions and trade, can apply in the current virtual, digital world of cloud computing. It aims to identify the difficulties current approaches face as they are applied to this developing technology, and attempts to explore some practical solutions for future Transfer Pricing law reforms at both the international and national level by drawing on insights from the Transfer Pricing rules of the OECD and Australia