handbook-tb

Eric M. Zoltattributable to developing countries whose current share of totalincome may be less than the amount of income determined withrespect to such factors as sales, employment or total assets. Changesthat increase the potential tax liability for foreign investors will likelymake tax incentives more attractive.Figure 2:Continuum of types of transfer pricing methodsComparable uncontrolled priceFunction allocation for distributionor manufacturingProfit splits and comparable profitsArm’s lengthpricingGlobal formularyapportionmentFormulary allocation of “excessprofits” or “profits from intangibles”Formulary allocation of profitsfrom certain activitiesAllocation of all profitsbased on common formula5. ConclusionTax incentives can play a useful role in encouraging both domestic andforeign investment. How useful they may be, and at what cost, dependson how well the tax incentive programmes are designed, implementedand monitored. The present chapter has examined the costs and benefitsof tax incentives, the relative advantages and disadvantages of differenttypes of incentives, and important considerations in designing,granting and monitoring the use of tax incentives to increase investmentand growth.No easy answers exist to the questions of whether to use taxincentives and what form they should take. There are, however, some494