The degree of comparability between controlled and uncontrolled transactions is determined by applying the provisions of § 1.482-1(d). Although all of the factors described in § 1.482-1(d)(3) must be considered, similarity of products generally will have the greatest effect on comparability under this method. In addition, because even minor differences in contractual terms or economic conditions could materially affect the amount charged in an uncontrolled transaction, comparability under this method depends on close similarity with respect to these factors, or adjustments to account for any differences. The results derived from applying the comparable uncontrolled price method generally will be the most direct and reliable measure of an arm’s length price for the controlled transaction if an uncontrolled transaction has no differences with the controlled transaction that would affect the price, or if there are only minor differences that have a definite and reasonably ascertainable effect on price and for which appropriate adjustments are made. If such adjustments cannot be made, or if there are more than minor differences between the controlled and uncontrolled transactions, the comparable uncontrolled price method may be used, but the reliability of the results as a measure of the arm’s length price will be reduced. Further, if there are material product differences for which reliable adjustments cannot be made, this method ordinarily will not provide a reliable measure of an arm’s length result.
§ 1.482-3(b)(2)(ii)(A) In general.
Category: (b) Comparable uncontrolled price method, Transfer Pricing Guidelines, US IRC Section 482 on Transfer Pricing, § 1.482-3 Methods to determine taxable income in connection with a transfer of tangible property | Tag: Comparability, Comparability adjustments, Comparability analysis - 9 step process, Comparable uncontrolled price method (CUP)
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Next » Related Guidelines
- TPG2022 Chapter II paragraph 2.16It may be difficult to find a transaction between independent enterprises that is similar enough to a controlled transaction such that no differences have a material effect on price. For example, a minor difference in the property transferred in the controlled and uncontrolled...
- TPG2022 Chapter II paragraph 2.17In considering whether controlled and uncontrolled transactions are comparable, regard should be had to the effect on price of broader business functions other than just product comparability (i.e. factors relevant to determining comparability under Chapter I). Where differences exist between the controlled and...
- TPG2022 Chapter II paragraph 2.18Subject to the guidance in paragraph 2.2 for selecting the most appropriate transfer pricing method in the circumstances of a particular case, the CUP method would generally be an appropriate transfer pricing method for establishing the arm’s length price for the transfer of...
- TPG2022 Chapter VI paragraph 6.208It should also be recognised that comparability adjustments for factors other than differences in the nature of the intangibles used may be required in matters involving the use of intangibles in connection with a controlled sale of goods or services. In particular, comparability...
- TPG2022 Chapter VI paragraph 6.147In some situations, intangibles acquired by an MNE group from independent enterprises are transferred to a member of the MNE group in a controlled transaction immediately following the acquisition. In such a case the price paid for the acquired intangibles will often (after...
- TPG2022 Chapter II paragraph 2.15Following the principles in Chapter I, an uncontrolled transaction is comparable to a controlled transaction (i.e. it is a comparable uncontrolled transaction) for purposes of the CUP method if one of two conditions is met: a) none of the differences (if any) between...
- TPG2022 Chapter II paragraph 2.81Another important aspect of comparability is measurement consistency. The net profit indicators must be measured consistently between the associated enterprise and the independent enterprise. In addition, there may be differences in the treatment across enterprises of operating expenses and non-operating expenses affecting the...
- TPG2022 Chapter II paragraph 2.3Traditional transaction methods are regarded as the most direct means of establishing whether conditions in the commercial and financial relations between associated enterprises are arm’s length. This is because any difference in the price of a controlled transaction from the price in a...
- 2018: ATO Taxpayer Alert on Mischaracterisation of activities or payments in connection with intangible assets (TA 2018/2)The ATO is currently reviewing international arrangements that mischaracterise intangible assets[1] and/or activities or conditions connected with intangible assets. The concerns include whether intangible assets have been appropriately recognised for Australian tax purposes and whether Australian royalty withholding tax obligations have been met. Arrangements...
- EU JTPF, March 2017, Report on the Use of Comparables in the EUIn March 2017 the JTPF agreed the Report on the Use of Comparables in the EU. The report establishes best practices and pragmatic solutions by issuing various recommendations for both taxpayers and tax administrations in the EU and aims at increasing in practice...
Related Case Law
- France vs Willink SAS, September 2020, CAA de PARIS, Case No 20PA00585In 2011, Willink SAS issued two intercompany convertible bonds with a maturity of 10 years and an annual interest rate of 8%. The tax authorities found that the 8% interest rate had not been determined in accordance with the arm’s length principle. Willink...
- Netherlands vs “Fertilizer BV”, April 2022, Court of Appeal, Case No. ECLI:NL:GHSHE:2022:1198In 2016 Fertilizer BV had been issued a tax assessment for FY 2012 in which the tax authorities had imposed additional taxable income of €133,076,615. In November 2019 the district court ruled predominantly in favor of the tax authorities but reduced the adjustment...
- Hungary vs “Electronic components Manufacturing KtF”, June 2023, Supreme Court, Case No Kfv.V.35.415/2022/7“Electric Component Manufacturing KtF” is a Hungarian subsidiary of a global group that distributes electronic components in more than 150 countries worldwide. The tax authorities had conducted a comprehensive tax audit of the Hungarian company for the period from 1 October 2016 to...
- Korea vs Corp, October 2001, Supreme Court, Case No 99두3423In Korea the tax authorities usually regarded domestic transactions as better comparables and there were only few cases where transfer pricing had been applied based on foreign transactions. In this case, the Korean Supreme Court confirms that international transactions can be used as...