The arm’s length range is ordinarily determined by applying a single pricing method selected under the best method rule to two or more uncontrolled transactions of similar comparability and reliability. Use of more than one method may be appropriate for the purposes described in paragraph (c)(2)(iii) of this section (Best method rule).
§ 1.482-1(e)(2)(i) Single method.
Category: (e) Arm's length range, Transfer Pricing Guidelines, US IRC Section 482 on Transfer Pricing, § 1.482-1 Allocation of income and deductions among taxpayers | Tag: Arm’s length range, Best Method Rule, Interquartile range (IQR), Most appropriate method (MAM), Single method, Statistical tools
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- TPG2022 Chapter III paragraph 3.62In determining this point, where the range comprises results of relatively equal and high reliability, it could be argued that any point in the range satisfies the arm’s length principle. Where comparability defects remain as discussed at paragraph 3.57, it may be appropriate...
- TPG2022 Chapter III paragraph 3.61If the relevant condition of the controlled transaction (e.g. price or margin) falls outside the arm’s length range asserted by the tax administration, the taxpayer should have the opportunity to present arguments that the conditions of the controlled transaction satisfy the arm’s length...
- TPG2022 Chapter III paragraph 3.57It may also be the case that, while every effort has been made to exclude points that have a lesser degree of comparability, what is arrived at is a range of figures for which it is considered, given the process used for selecting...
- TPG2022 Chapter III paragraph 3.79The use of multiple year data does not necessarily imply the use of multiple year averages. Multiple year data and averages can however be used in some circumstances to improve reliability of the range. See paragraphs 3.57-3.62 for a discussion of statistical tools....
- TPG2022 Chapter III paragraph 3.66A similar investigation should be undertaken for potential comparables returning abnormally large profits relative to other potential comparables....
- TPG2022 Chapter III paragraph 3.65Generally speaking, a loss-making uncontrolled transaction should trigger further investigation in order to establish whether or not it can be a comparable. Circumstances in which loss-making transactions/ enterprises should be excluded from the list of comparables include cases where losses do not reflect...
- German TP-Legislation updated as of June 2021German legislation on transfer pricing has been updated to align the rules with the OECD Transfer Pricing Guidelines 2017. The new amendments are effective as of fiscal year 2022. The rules includes revised content on Substance over form Risk analysis Best method rule...
- Italy releases operational instructions on arm’s length range and benchmarking.On 24 May 2022, the Italian Tax Agency (Agenzia delle Entrate) released CIRCULAR NO. 16/E containing operational instructions on issues relating to application of the arm’s length range. The circular – which is based on the OECD transfer Pricing Guidelines, guidance on benchmark...
Related Case Law
- South Africa vs ABC (PTY) LTD, January 2021, Tax Court of Johannesburg, Case No IT 14305ABC Ltd is in the business of manufacturing, importing, and selling chemical products. It has a catalyst division that is focused on manufacturing and selling catalytic converters (catalysts). Catalysts are used in the abatement of harmful exhaust emissions from motor vehicles. To produce...
- Spain vs Transalliance Iberica SA, November 2022, Audiencia Nacional, Case No SAN 5336/2022 – ECLI:EN:AN:2022:5336Transalliance Iberica SA had priced its controlled transactions for the years 2008-2013 by comparing the gross margin achieved on an overall basis with the gross margins of comparable companies. Following an audit, the tax authorities issued a notice of assessment rejecting the method...
- Argentina vs Bayer Argentina S.A., March 2024, Supreme Court, Case No CAF 34007/2019/1/RH1The tax authorities had applied the TNMM and used the interquartile range and median to determine the arm’s length income of Bayer Argentina S.A. for FY 1999 and this resulted in a tax assessment being issued where the taxable income had been adjusted...
- Denmark vs Viking Life-Saving Equipment A/S, February 2025, Court of Appeal, Case No BS-24597/2023-VLR (SKM2025.242.VLR)Viking A/S sold life-saving equipment products to its foreign subsidiaries (internal service stations) at lower prices than to unrelated parties (external service stations). Its transfer pricing documentation did not clearly state or justify the pricing method used. The way in which Viking compared...
- Greece vs “Pharma Distributor Ltd.”, November 2022, Administrative Tribunal, Case No ΔΕΔ 3712/2022Following an audit, the Greek tax authorities determined that the profit of “Pharma Distributor Ltd” for sales and service activities had not been determined in accordance with the arm’s length principle. The tax authorities issued an assessment of additional taxable income, rejecting the...