§ 1.482-4(c) Comparable uncontrolled transaction method –

Category: (c) Comparable uncontrolled transaction method, Transfer Pricing Guidelines, US IRC Section 482 on Transfer Pricing, § 1.482-4 Methods to determine taxable income in connection with a transfer of intangible property | Tag: , , ,
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Under the comparable profits method, the determination of an arm’s length result is based on the amount of operating profit that the tested party would have earned on related party transactions if its profit level indicator were equal to that of an uncontrolled comparable (comparable operating profit). Comparable operating profit is calculated by determining a profit level indicator for an uncontrolled comparable, and applying the profit level indicator to the financial data related to the tested party’s most narrowly identifiable business activity for which data incorporating the controlled transaction is available (relevant business activity). To the extent possible, profit level indicators should be applied solely to the tested party’s financial data that is related to controlled transactions. The tested party’s reported operating profit is compared to the comparable operating profits derived from the profit level indicators of uncontrolled comparables to determine whether the reported operating profit represents an arm’s length result.






Related Guidelines

  1. TPG2022 Chapter VI paragraph 6.199For example, a tested party engaged in the marketing and distribution of goods purchased in controlled transactions may have developed marketing intangibles in its geographic area of operation, including customer lists, customer relationships, and customer data. It may also have developed advantageous logistical...
  2. TPG2022 Chapter VI paragraph 6.201Where the tested party and the potential comparable have comparable intangibles, the intangibles will not constitute unique and valuable intangibles within the meaning of paragraph 6.17, and therefore no comparability adjustments will be required with regard to the intangibles. The potential comparable will,...
  3. TPG2022 Chapter II paragraph 2.104In cases where the net profit is weighted to assets, the question arises how to value the assets, e.g. at book value or market value. Using book value could possibly distort the comparison, e.g. between those enterprises that have depreciated their assets and...
  4. TPG2022 Chapter VI paragraph 6.207Where the need to make comparability adjustments arises because of differences in the intangibles used by the tested party in a controlled transaction and the intangibles used by a party to a potentially comparable uncontrolled transaction, difficult factual questions can arise in quantifying...
  5. TPG2022 Chapter VI paragraph 6.76A common situation where these principles must be applied arises when an enterprise associated with the legal owner of trademarks performs marketing or sales functions that benefit the legal owner of the trademark, for example through a marketing arrangement or through a distribution/marketing...
  6. TPG2022 Chapter VI paragraph 6.139Where information regarding reliable comparable uncontrolled transactions cannot be identified, the arm’s length principle requires use of another method to determine the price that uncontrolled parties would have agreed under comparable circumstances. In making such determinations, it is important to consider: The functions,...
  7. TPG2022 Chapter VI paragraph 6.203The principles of Chapters I – III apply in determining arm’s length prices for transactions involving the use of intangibles in connection with sales of goods or the performance of services. Two general categories of cases can arise. In the first category of...
  8. TPG2022 Chapter VI paragraph 6.200It is important to note, however, that in many cases where the tested party uses such intangibles, parties to comparable uncontrolled transactions will also have the same types of intangibles at their disposal. Thus, in the distribution company case, an uncontrolled entity engaged...
  1. 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...
  2. Additional guidance on the attribution of profits to permanent establishmentsThe OECD has released additional guidance on the attribution of profits to permanent establishments. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments arising under Article 5(5), in accordance with applicable treaty provisions, and includes examples...

Related Case Law

  1. US vs TBL LICENSING LLC, January 2022, U.S. Tax Court, Case No. 158 T.C. No 1 (Docket No. 21146-15)A restructuring that followed the acquisition of Timberland by VF Enterprises in 2011 resulted in an intra-group transfer of ownership to valuable intangibles to a Swiss corporation, TBL Investment Holdings. The IRS was of the opinion that gains from the transfer was taxable....
  2. Ukrain vs PJSC Odesa Port Plant, October 2023, Supreme Court, Case No 826/14873/17Following a tax audit the tax authority conducted a on-site inspection of PJSC Odesa Port Plant on the completeness of tax calculation in respect of controlled transactions on the export of mineral fertilisers to non-resident companies Ameropa AG (Switzerland), “Koch Fertilizer Trading SARL...
  3. Ukrain vs Totland LLC, November 2021, Supreme Court, Case No 580/2610/19Following a tax audit of controlled transactions in 2013 and 2015 for the sale of goods to foreign related parties, the tax authorities concluded that Totland had understated the price of the goods sold and thus its taxable income. On that basis an...
  4. 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...