The degree of consistency in accounting practices between the controlled transaction and the uncontrolled comparables that materially affect the gross profit markup affects the reliability of the result. Thus, for example, if differences in inventory and other cost accounting practices would materially affect the gross profit markup, the ability to make reliable adjustments for such differences would affect the reliability of the results. Further, the controlled transaction and the comparable uncontrolled transaction should be consistent in the reporting of costs between cost of goods sold and operating expenses. The term cost of producing includes the cost of acquiring property that is held for resale.
§ 1.482-3(d)(3)(iii)(B) Consistency in accounting.
Category: (d) Cost plus 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: Accounting consistency, Cost plus method, Gross margin, Gross profit margin, Gross profit markup
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- TPG2022 Chapter II paragraph 2.59A is a domestic manufacturer of timing mechanisms for mass- market clocks. A sells this product to its foreign subsidiary B. A earns a 5% gross profit mark up with respect to its manufacturing operation. X, Y, and Z are independent domestic manufacturers...
- TPG2022 Chapter II paragraph 2.58No general rule can be set out that deals with all cases. The various methods for determining costs should be consistent as between the controlled and uncontrolled transactions and consistent over time in relation to particular enterprises. For example, in determining the appropriate...
- TPG2022 Chapter II paragraph 2.56The costs that may be considered in applying the cost plus method are limited to those of the supplier of goods or services. This limitation may raise a problem of how to allocate some costs between suppliers and purchasers. There is a possibility...
- TPG2022 Chapter II paragraph 2.54The distinction between gross and net profit analyses may be understood in the following terms. In general, the cost plus method will use mark ups computed after direct and indirect costs of production, while a net profit method will use profits computed after...
- TPG2022 Chapter II paragraph 2.53While precise accounting standards and terms may vary, in general the costs and expenses of an enterprise are understood to be divisible into three broad categories. First, there are the direct costs of producing a product or service, such as the cost of...
- TPG2022 Chapter II paragraph 2.52Another important aspect of comparability is accounting consistency. Where the accounting practices differ in the controlled transaction and the uncontrolled transaction, appropriate adjustments should be made to the data used to ensure that the same type of costs are used in each case...
Related Case Law
- Greece vs “Agri Ltd”, july 2020, Court, Case No A 1514A Greek MNE Group, “Agri Ltd”, was active and specialised in wholesale trade of agricultural machinery, parts and tools. In 2012 a German company was established by the group to distribute products in the Central European region. The pricing of the goods sold...
- Ukrain vs PJSP Gals-K, July 2021, Supreme Administrative Court, Case No 620/1767/19Ukrainian company “PJSP Gals-K” had been involved in various controlled transactions – complex technological drilling services; sale of crude oil; transfer of fixed assets etc. The tax authority found, that prices had not been determined in accordance with the arm’s length principle and...
- France vs SAS Cooper Capri, December 2015, CAA de Nantes, Case No 14NT01720SAS Cooper Capri’s belongs to the American group Cooper Industries. The Group carries out a parts production and sales activity in the context of two branches, a “construction” branch and an “industry” branch which produces, in particular, cable glands Cooper Capri was subject...