In a transfer pricing analysis where the most appropriate transfer pricing method is the resale price method, the cost-plus method, or the transactional net margin method, the less complex of the parties to the controlled transaction is often selected as the tested party. In many cases, an arm’s length price or level of profit for the tested party can be determined without the need to value the intangibles used in connection with the transaction. That would generally be the case where only the non-tested party uses intangibles. In some cases, however, the tested party may in fact use intangibles notwithstanding its relatively less complex operations. Similarly, parties to potentially comparable uncontrolled transactions may use intangibles. Where either of these is the case, it becomes necessary to consider the intangibles used by the tested party and by the parties to potentially comparable uncontrolled transactions as one comparability factor in the analysis.
TPG2017 Chapter VI paragraph 6.198
Category: D. Determining arm's length conditions in cases involving intangibles, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter VI: Special Considerations for Intangibles | Tag: Cost plus method, Distribution, Intangibles, Limited Risk Distributors (LRD), Resale price method (RPM), Tested party, Transactional net margin method (TNMM)
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Related Case Law
- US vs TBL LICENSING LLC, January 2022, U.S. Tax Court, Case No. 158 T.C. No 1 (Docket No. 21146-15)A restructuring that followed the acquisition of Timberland by VF Enterprises in 2011 resulted in an intra-group transfer of ownership to valuable intangibles to a Swiss corporation, TBL Investment Holdings. The IRS was of the opinion that gains from the transfer was taxable....
- US vs GlaxoSmithKline Holdings, September 2006, IR-2006-142In September 2006 the Internal Revenue Service announced that it has successfully resolved a transfer pricing dispute with Glaxo SmithKline. Under the settlement agreement, GSK will pay the Internal Revenue Service approximately $3.4 billion, and will abandon its claim seeking a refund of...
- Russia vs LLC Bogoroditskoye, February 2019, Court of Appeal, Case No. А62-8105/2017LLC Bogoroditskoye processed and preserved fish and seafood. During the period under review, these products were sold only to related parties. Following an transfer pricing audit, where the TNMM method was used, the tax authority concluded that the price of products paid by...
- Slovenia vs “VAT Corp”, Februar 2018, Administrative Court, Case No I-U-861/2016-14The court ruled that, based on all the findings in the proceedings (the plaintiff did not provide documentation, did not follow the tax authority’s instructions), the tax authority had the possibility to establish the tax base by assessment pursuant to Article 68 of...