The resale price method begins with the price at which a product that has been purchased from an associated enterprise is resold to an independent enterprise. This price (the resale price) is then reduced by an appropriate gross margin on this price (the “resale price margin”) representing the amount out of which the reseller would seek to cover its selling and other operating expenses and, in the light of the functions performed (taking into account assets used and risks assumed), make an appropriate profit. What is left after subtracting the gross margin can be regarded, after adjustment for other costs associated with the purchase of the product (e.g. customs duties), as an arm’s length price for the original transfer of property between the associated enterprises. This method is probably most useful where it is applied to marketing operations.
TPG2017 Chapter II paragraph 2.27
Category: C. Resale price method, OECD Transfer Pricing Guidelines (2017), Part II Traditional transaction method, TPG2017 Chapter II: Transfer Pricing Methods | Tag: Gross margin, Limited Risk Distributors (LRD), Marketing operations, Resale price method (RPM), Traditional transaction methods, Transfer pricing methods
« Prev |
Next » Related Guidelines
- TPG2022 Chapter II paragraph 2.27The resale price method begins with the price at which a product that has been purchased from an associated enterprise is resold to an independent enterprise. This price (the resale price) is then reduced by an appropriate gross margin on this price (the...
- TPG2022 Chapter II paragraph 2.42Assume that there are two distributors selling the same product in the same market under the same brand name. Distributor A offers a warranty; Distributor B offers none. Distributor A is not including the warranty as part of a pricing strategy and so...
- TPG2022 Chapter II paragraph 2.41Where the accounting practices differ from the controlled transaction to the uncontrolled transaction, appropriate adjustments should be made to the data used in calculating the resale price margin in order to ensure that the same types of costs are used in each case...
- 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 2.28The resale price margin of the reseller in the controlled transaction may be determined by reference to the resale price margin that the same reseller earns on items purchased and sold in comparable uncontrolled transactions (“internal comparable”). Also, the resale price margin earned...
- TPG2022 Chapter II paragraph 2.33When the resale price margin used is that of an independent enterprise in a comparable transaction, the reliability of the resale price method may be affected if there are material differences in the ways the associated enterprises and independent enterprises carry out their...
Related Case Law
- Chile vs Avery Dennison Chile S.A., May 2022, Court of Appeal, Case N° Rol: 99-2021The US group, Avery Dennison, manufactures and distributes labelling and packaging materials in more than 50 countries around the world. The remuneration of the distribution and marketing activities performed Avery Dennison Chile S.A. had been determined to be at arm’s length by application...
- Latvia vs SIA Informācijas Tehnoloģijas, September 2014, Supreme Administrative Court, Case No A420529010 SKA-813/2014Informācijas tehnoloģijas purchased computer hardware from its Lithuanian affiliate TD Baltic, which in turn purchased it from unrelated wholesalers (manufacturers). The goods received were resold by Informācijas tehnoloģijas to unrelated companies. Following an audit, an assessment was issued where the tax authorities found...
- Greece vs “G Pharma Ltd”, july 2020, Administrative Tribunal, Case No 1582/2020“G Pharma Ltd” is a distributor of generic and specialised pharmaceutical products purchased exclusively from affiliated suppliers. It has no significant intangible assets nor does it assume any significant risks. However for 17 consecutive years it has had losses. Following an audit, the...
- Greece vs “Pharma Distributor Ltd.”, November 2022, Administrative Tribunal, Case No ΔΕΔ 3712/2022Following an audit, the Greek tax authorities determined that the profit of “Pharma Distributor Ltd” for sales and service activities had not been determined in accordance with the arm’s length principle. The tax authorities issued an assessment of additional taxable income, rejecting the...
- Panama vs Puma Energy Bahamas SA, June 2024, Supreme Court, N° 849112020Puma Energy Bahamas SA is engaged in the wholesale of petroleum products, accessories and rolling stock in general in Panama. Following a thorough audit carried out by the Tax Administration in Panama, where discrepancies and inconsistencies had been identified between the transfer pricing...