It is a good practice for taxpayers to set up a process to establish, monitor and review their transfer prices, taking into account the size of the transactions, their complexity, level of risk involved, and whether they are performed in a stable or changing environment. Such a practical approach would conform to a pragmatic risk assessment strategy or prudent business management principle. In practice, this means that it may be reasonable for a taxpayer to devote relatively less effort to finding information on comparables supporting less significant or less material controlled transactions. For simple transactions that are carried out in a stable environment and the characteristics of which remain the same or similar, a detailed comparability (including functional) analysis may not be needed every year.
TPG2017 Chapter III paragraph 3.82
Category: C. Compliance issues, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter III: Comparability Analysis | Tag: Comparability analysis, Compliance issues, Documentation, Update every year
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- TPG2022 Chapter III paragraph 3.83Small to medium sized enterprises are entering into the area of transfer pricing and the number of cross-border transactions is ever increasing. Although the arm’s length principle applies equally to small and medium sized enterprises and transactions, pragmatic solutions may be appropriate in...
- TPG2022 Chapter III paragraph 3.69In some cases, taxpayers establish transfer pricing documentation to demonstrate that they have made reasonable efforts to comply with the arm’s length principle at the time their intra-group transactions were undertaken, i.e. on an ex ante basis (hereinafter “the arm’s length price-setting†approach),...
- TPG2022 Chapter III paragraph 3.81When undertaking a comparability analysis, there is no requirement for an exhaustive search of all possible relevant sources of information. Taxpayers and tax administrations should exercise judgment to determine whether particular comparables are reliable....
- TPG2022 Chapter III paragraph 3.42The second possibility, the “deductive†approach, starts with a wide set of companies that operate in the same sector of activity, perform similar broad functions and do not present economic characteristics that are obviously different. The list is then refined using selection criteria...
- TPG2022 Chapter III paragraph 3.29There are various sources of information that can be used to identify potential external comparables. This sub-section discusses particular issues that arise with respect to commercial databases, foreign comparables and information undisclosed to taxpayers. Additionally, whenever reliable internal comparables exist, it may be...
- OECD COVID-19 TPG paragraph 13Such a review may be performed as part of a more general set of approaches utilised to evaluate the context and the factors that may impact the arm’s length nature of prices....
- TPG2022 Chapter III paragraph 3.38The identification of potential comparables has to be made with the objective of finding the most reliable data, recognising that they will not always be perfect. For instance, independent transactions may be scarce in certain markets and industries. A pragmatic solution may need...
- TPG2022 Chapter III paragraph 3.4Below is a description of a typical process that can be followed when performing a comparability analysis. This process is considered an accepted good practice but it is not a compulsory one, and any other search process leading to the identification of reliable...
- Additional guidance on the attribution of profits to permanent establishmentsThe OECD has released additional guidance on the attribution of profits to permanent establishments. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments arising under Article 5(5), in accordance with applicable treaty provisions, and includes examples...
- OECD’s Manual on Exchange of Information and on Conducting Simultaneous Tax ExaminationsThe purpose of the Manual is to provide tax officials dealing with exchange of information for tax purposes with an overview of the operation of exchange of information provisions and some technical and practical guidance to improve the efficiency of such exchanges. The...
Related Case Law
- Switzerland vs “A AG”, September 2023, Federal Administrative Court, Case No A-4976/2022A Swiss company, A AG, paid two related parties, B AG and C AG, for services in the financial years 2015 and 2016. These services had been priced using the internal CUP method based on the pricing of services provided by B Ltd...
- France vs Apex Tool Group SAS, December 2021, Supreme Court, Case No 441357Apex Tool Holding France acquired all the shares of Cooper Industrie France, which has since become Apex Tool France. This transaction was financed by a ten-year vendor loan at a rate of 6%. This claim on Apex Tool Holding France was transferred on...
- Romania vs “Milk and Dairy” A. SA, September 2020, Supreme Court, Case No 4702/2020In regards of transfer pricing A. SA had two activities – production of dairy products and distribution of milk – that had been subject to an audit by the tax authorities which resulted in an assessment of additional taxable income. The transfer pricing...
- Poland issues Tax Explanations on Transfer Pricing – No. 1: Comparability Analyses and Transfer Pricing Documentation18 June 2019 the Polish Minister of Finance issued the first explanations on transfer pricing concerning – technical aspects of preparing comparability analyses and transfer pricing documentation. With regard to the technical aspects of preparing comparability analyses, the explanations cover such detailed issues...