One advantage of the “deductive” approach is that it is more reproducible and transparent than the “additive”. It is also easier to verify because the review concentrates on the process and on the relevance of the selection criteria retained. On the other hand, it is acknowledged that the quality of the outcome of a “deductive” approach depends on the quality of the search tools on which it relies (e.g. quality of the database where a database is used and possibility to obtain detailed enough information). This can be a practical limitation in some countries where the reliability and usefulness of databases in comparability analyses are questionable.
TPG2017 Chapter III paragraph 3.44
Category: A. Performing a comparability analysis, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter III: Comparability Analysis | Tag: Additive approach, Comparability analysis, Comparable search, Deductive approach, Search criteria, Transparency
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- TPG2022 Chapter III paragraph 3.44One advantage of the “deductive” approach is that it is more reproducible and transparent than the “additive”. It is also easier to verify because the review concentrates on the process and on the relevance of the selection criteria retained. On the other hand,...
- TPG2022 Chapter III paragraph 3.45It would not be appropriate to give systematic preference to one approach over the other because, depending on the circumstances of the case, there could be value in either the “additive” or the “deductive” approach, or in a combination of both. The “additive”...
- TPG2022 Chapter III paragraph 3.41The first one, which can be qualified as the “additive” approach, consists of the person making the search drawing up a list of third parties that are believed to carry out potentially comparable transactions. Information is then collected on transactions conducted by these...
- TPG2022 Chapter III paragraph 3.47The need to adjust comparables and the requirement for accuracy and reliability are pointed out in these Guidelines on several occasions, both for the general application of the arm’s length principle and more specifically in the context of each method. To be comparable...
- TPG2022 Chapter III paragraph 3.46The process followed to identify potential comparables is one of the most critical aspects of the comparability analysis and it should be transparent, systematic and verifiable. In particular, the choice of selection criteria has a significant influence on the outcome of the analysis...
- TPG2022 Chapter III paragraph 3.43In practice, both quantitative and qualitative criteria are used to include or reject potential comparables. Examples of qualitative criteria are found in product portfolios and business strategies. The most commonly observed quantitative criteria are: Size criteria in terms of Sales, Assets or Number...