This part provides a detailed description of traditional transaction methods that are used to apply the arm’s length principle. These methods are the comparable uncontrolled price method or CUP method, the resale price method, and the cost plus method.
TPG2017 Chapter II paragraph 2.13
Category: A. Introduction, OECD Transfer Pricing Guidelines (2017), Part II Traditional transaction method, TPG2017 Chapter II: Transfer Pricing Methods | Tag: Comparable uncontrolled price method (CUP), Cost plus method, Resale price method (RPM), Traditional transaction methods, Transfer pricing methods
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- TPG2022 Chapter II paragraph 2.14The CUP method compares the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. If there is any difference between the two prices, this...
- TPG2022 Chapter II paragraph 2.2The selection of a transfer pricing method always aims at finding the most appropriate method for a particular case. For this purpose, the selection process should take account of the respective strengths and weaknesses of the OECD recognised methods; the appropriateness of the...
- 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 2.48For example, assume that Company A manufactures and sells toasters to a distributor that is an associated enterprise, that Company B manufactures and sells irons to a distributor that is an independent enterprise, and that the profit margins on the manufacture of basic...
- TPG2022 Chapter II paragraph 2.30In a market economy, the compensation for performing similar functions would tend to be equalized across different activities. In contrast, prices for different products would tend to equalize only to the extent that those products were substitutes for one another. Because gross profit...
- TPG2022 Chapter II paragraph 2.51For this purpose, it is particularly important to consider differences in the level and types of expenses – operating expenses and non- operating expenses including financing expenditures – associated with functions performed and risks assumed by the parties or transactions being compared. Consideration...
- TPG2022 Chapter II paragraph 2.29Following 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 resale price method if one of two conditions is met: a) none of the differences (if any)...
- TPG2022 Chapter II paragraph 2.34The resale price method also depends on comparability of functions performed (taking into account assets used and risks assumed). It may become less reliable when there are differences between the controlled and uncontrolled transactions and the parties to the transactions, and those differences...
- 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
- Russia vs ZAO NK Dulisma, January 2017, Court of Appeal, Case No. А40-123426/2016In 2012, ZAO NK Dulisma, a Russian oil and gas company, sold crude oil via an unrelated Hong Kong-based trader. In Russia, transactions with unrelated parties may be deemed controlled transactions for Transfer Pricing purposes, provided certain conditions are met. The Russian Tax...
- Portugal vs “FURNITURE S.A.” No I, November 2021, CAAD, Case No 14/2021-TFurniture S.A is engaged in the production and sale of furniture and had established a US subsidiary to market and sell furniture overseas. The pricing of the controlled transactions with the US subsidiary had been based on a resale price method, which resulted...
- Russia vs Burdinsky A.V., March 2018, Supreme Court, Case No. No. А04-9989/2016Burdinsky A.V. sold building products to both related and unrelated parties. Following an audit of FY 2012-2014, the tax authorities concluded that Burdinsky had understated the price of goods in transactions with related parties in order to save on taxes and obtain unjustified...
- Russia vs ViciunaiRus LLC, December 2018, Court of Appeal, Case No. A21-133/2018ViciunaiRus LLC was engaged in production and wholesale distribution of its products. During the inspection, the inspection concluded that the chain of contractual relations between the Company and its sole official distributor in the Russian Federation artificially had established intermediates that do not...