If the circumstances of Example 2 remain the same except for the fact that, while the contract specifies that Company A assumes supply chain risks, Company B is not reimbursed by Company A when there was a failure to secure key components on time, the analysis under step 4(i) would show that contractual assumption of risk has not been followed in practice in regard to that supply chain risk, such that Company B in fact assumes the downside consequences of that risk. Based on the information provided in Example 2, Company B does not have any control over the supply chain risk, whereas Company A does exercise control. Therefore, the party assuming risk as analysed under step 4(i), does not under step 4(ii) exercise control over that risk, and further consideration is required under step 5.
TPG2017 Chapter I paragraph 1.91
Category: D. Guidance for applying the arm's length principle, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter I: The Arm's Length Principle | Tag: Analysis of risk, Assumption of risk / Risk assumption, Comparability analysis, Contractual Assumption of risk, Contractual assumption of risk not followed in practice, Control over risk, Functional analysis, Interpretation, No control over risk, Risk analysis - 6 step
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- TPG2022 Chapter I paragraph 1.92In the circumstances of Example 3, analysis under step 4(i) shows that the assumption of utilisation risk by Company A is consistent with its contractual arrangements with Company C, but under step 4(ii) it is determined that Company A does not control risks...
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- April 2013: Draft Handbook on Transfer Pricing Risk AssessmentThe 2013 Draft Handbook on Transfer Pricing Risk Assessment is a detailed, practical resource that countries can follow in developing their own risk assessment approaches. The handbook supplements useful materials already available with respect to transfer pricing risk assessment. The OECD Forum on...
Related Case Law
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