Arm’s Length, Fair Market Value, Market Price and Fair Price: 1) which standard provides the best measure for intercompany pricing and why is it better than the arm’s length method. 2) What are the pros and cons of each method?
Sample solution
Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell.
In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.
God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.
Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.
To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.
References
Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.
Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.
Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.
Sample Answer
Sample Answer
Arm’s Length, Fair Market Value, Market Price, and Fair Price: Which standard provides the best measure for intercompany pricing and why is it better than the arm’s length method?
Introduction
Intercompany pricing refers to the determination of prices for goods, services, or intellectual property transferred between related entities within a multinational corporation. It is crucial to establish a fair and reasonable pricing mechanism to ensure that transactions between related parties are conducted on a level playing field. Various standards have been developed to address this issue, including the Arm’s Length Principle, Fair Market Value, Market Price, and Fair Price. In this essay, we will explore these standards and argue that the Fair Market Value provides the best measure for intercompany pricing, surpassing the Arm’s Length method.
1. Arm’s Length Method
The Arm’s Length Method is the most commonly used standard for intercompany pricing. It suggests that related entities should price their transactions as if they were dealing with unrelated, independent parties. The goal is to ensure that the transaction price aligns with what would have been agreed upon in a free and competitive market.
Pros:
Widely accepted by tax authorities and organizations such as the Organization for Economic Co-operation and Development (OECD).
Provides a clear framework for determining transfer prices.
Emphasizes the importance of market forces in determining pricing.
Cons:
Difficulties in finding comparable transactions between unrelated parties.
Lack of flexibility to account for unique circumstances and risks specific to related party transactions.
Tendency to rely on a narrow definition of comparability, leading to potential inaccuracies in determining arm’s length prices.
2. Fair Market Value
Fair Market Value is the price at which an asset would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts and neither being under compulsion to buy or sell. It is a commonly used standard in various fields, including real estate, securities, and business valuations.
Pros:
Reflects the true market value of an asset or service.
Provides a more objective and unbiased approach to pricing.
Takes into account the specific circumstances and market conditions.
Cons:
Difficulties in determining the true market value, particularly in cases where there is limited market activity or unique assets.
May require the use of complex valuation techniques, leading to potential discrepancies or disputes.
Potential for manipulation or subjective interpretation of market conditions.
3. Market Price
Market Price refers to the actual price at which a good or service is sold in the market at a given point in time. It is determined by the interaction of supply and demand forces in an open and competitive market.
Pros:
Reflects the actual price observed in the market, providing a realistic benchmark.
Takes into account current market conditions and forces of supply and demand.
Provides a straightforward and easily understandable method for pricing.
Cons:
Limited applicability in cases where there is no active market for the specific goods or services.
Susceptible to short-term fluctuations, making it less reliable for long-term pricing agreements.
Does not account for unique circumstances or specific risks associated with related party transactions.
4. Fair Price
Fair Price refers to a reasonable and justifiable price based on considerations such as cost, value, or a combination of both. It is often used in regulated industries where pricing is subject to scrutiny by regulatory authorities.
Pros:
Takes into account broader considerations beyond market forces, such as costs and societal objectives.
Provides a mechanism for ensuring fairness and avoiding excessive pricing.
Allows for the consideration of non-market factors that may be relevant in specific industries.
Cons:
Subject to potential manipulation or subjective interpretation of costs or societal objectives.
May not align with market conditions or reflect the true economic value of the goods or services.
Can be challenging to determine a fair price that satisfies all stakeholders’ interests.
Conclusion
While all the standards mentioned above have their merits and drawbacks, the Fair Market Value standard stands out as the best measure for intercompany pricing. By considering the hypothetical transaction between a willing buyer and a willing seller, Fair Market Value provides a more objective and unbiased approach that reflects the true market value of an asset or service. It takes into account specific circumstances and market conditions, allowing for a more accurate determination of intercompany prices. Although challenges exist in determining the fair market value, such as limited market activity or the use of complex valuation techniques, these can be addressed through proper methodologies and professional judgment. By adopting the Fair Market Value standard, multinational corporations can ensure a fair and reasonable pricing mechanism for their related party transactions.
