The 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 means that none of the differences (if any) between the situations being compared could materially affect the condition being examined in the methodology or that reasonably accurate adjustments can be made to eliminate the effect of any such differences. Whether comparability adjustments should be performed (and if so, what adjustments should be performed) in a particular case is a matter of judgment that should be evaluated in light of the discussion of costs and compliance burden at Section C.
TPG2017 Chapter III paragraph 3.47
Category: A. Performing a comparability analysis, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter III: Comparability Analysis | Tag: Comparability adjustments, Comparability analysis, Comparable search, Comparables, Search criteria
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- TPG2022 Chapter III paragraph 3.48Examples of comparability adjustments include adjustments for accounting consistency designed to eliminate differences that may arise from differing accounting practices between the controlled and uncontrolled transactions; segmentation of financial data to eliminate significant non- comparable transactions; adjustments for differences in capital, functions, assets,...
- TPG2022 Chapter III paragraph 3.49An example of a working capital adjustment designed to reflect differing levels of accounts receivable, accounts payable and inventory is provided in the Annex to Chapter III. The fact that such adjustments are found in practice does not mean that they should be...
- TPG2022 Chapter I paragraph 1.131The existence of a cycle (e.g. economic, business, or product cycle) is one of the economic circumstances that should be identified. See paragraph 3.77 in relation to the use of multiple year data where there are cycles....
- TPG2022 Chapter III paragraph 3.52It is not always the case that adjustments are warranted. For instance, an adjustment for differences in accounts receivable may not be particularly useful if major differences in accounting standards were also present that could not be resolved. Likewise, sophisticated adjustments are sometimes...
- TPG2022 Chapter III paragraph 3.53It is not appropriate to view some comparability adjustments, such as for differences in levels of working capital, as “routine†and uncontroversial, and to view certain other adjustments, such as for country risk, as more subjective and therefore subject to additional requirements of...
- TPG2022 Chapter II paragraph 2.81Another important aspect of comparability is measurement consistency. The net profit indicators must be measured consistently between the associated enterprise and the independent enterprise. In addition, there may be differences in the treatment across enterprises of operating expenses and non-operating expenses affecting the...
- OECD COVID-19 TPG paragraph 27As a pragmatic means of addressing divergent economic conditions in the pre- or post-pandemic period, and when the pandemic was in effect and its effects on economic conditions were material, it may be appropriate to have separate testing periods (and periods considered for...
- TPG2022 Chapter III paragraph 3.54Ensuring the needed level of transparency of comparability adjustments may depend upon the availability of an explanation of any adjustments performed, the reasons for the adjustments being considered appropriate, how they were calculated, how they changed the results for each comparable and how...
- 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
- Hungary vs “Electronic components Manufacturing KtF”, June 2023, Supreme Court, Case No Kfv.V.35.415/2022/7“Electric Component Manufacturing KtF” is a Hungarian subsidiary of a global group that distributes electronic components in more than 150 countries worldwide. The tax authorities had conducted a comprehensive tax audit of the Hungarian company for the period from 1 October 2016 to...
- Bulgaria vs Yazaki Bulgaria Ltd, January 2023, Administrative Court, Case No 22/2022Yazaki Bulgaria Ltd is active in the automotive industry and is part of the Japanese Yazaki Group. It had used the transactional net margin method (TNMM) to demonstrate that prices for the sale of products to related parties were at arm’s length. Following...
- India vs Adidas India Marketing Pvt. Ltd., April 2022, Income Tax Appellate Tribunal Delhi, ITA No.487/Del/2021Adidas India Marketing Pvt. Ltd. is engaged in distribution and marketing of a range of Adidas and tailor made branded athletic and lifestyle products. Following an audit for FY 2016-2017, an assessment had been issued by the tax authorities where adjustments had been...
- Romania vs “Electrolux” A. SA, November 2020, Supreme Court, Case No 6059/2020In this case, a Romanian manufacturer and distributor (A. SA) in the Electrolux group (C) had been loss making while the group as a whole had been profitable. The tax authorities issued an assessment, where the profit of A. SA had been determined...