The assumptions in the following numerical examples are intended for illustrative purposes only and should not be taken as prescribing adjustments and arm’s length arrangements in actual cases or particular industries. While the examples seek to illustrate the interplay of the different components of the pricing methodology in section 5, the simplified and streamlined approach must be applied in each case according to the specific facts and circumstances. The illustrative examples use the midpoint for the adjustment under section 5.1, but any point within a range equal to the return on sales percentage derived from the pricing matrix (Table 5.1) plus or minus 0.5% can be relied upon for the purpose of demonstrating compliance with section 5.1. 1. The following 8 examples show how to calculate the return on sales of a tested party in scope of the simplified and streamlined approach. It assumes that the jurisdictions involved in the illustrations have implemented the simplified and streamlined approach, and that the tested party meets the scoping criteria, with no exclusions being applicable. Balance sheet items in the examples are calculated on an average basis in accordance with footnote 4 of the guidance. Example 1 – Basic fact pattern with the industry Group 1 and the factor intensity classification [C] 2. Assume that GROUP AB is an MNE group that manufactures and distributes household consumables. Company A is the parent company of the group, resident in Country A. Company B is a subsidiary of GROUP AB resident in Country B that undertakes wholesale distribution activities in Country B. 3. Company A sells household consumables to Company B, who then sells the products, without further modifications, to third party retailers in Country B. Unless indicated otherwise in the examples, Country B is not a qualifying jurisdiction within the meaning of sections 5.2 and 5.3. 4. Assume Company B shows the following figures (before the calculation of the return under the simplified and streamlined approach): 5. In order to determine the return of Company B in Year X under the simplified and streamlined approach, the following steps should be undertaken: • Step 1 – Determine the relevant industry grouping of the tested party. Company B falls into Group 1 of the industry groupings in the definitions section of the guidance. • Step 2 – Determine the relevant factor intensity classification. o As illustrated in the following tables, the net operating asset intensity of Company B calculated based on a weighted average of the preceding three-year period (from Year X-3 to Year X-1) is 29.22%, and the operating expenses intensity for the same period is 23.87%. Therefore, under the pricing matrix in section 5.1, the factor intensity classification of Company B is [C]. o The account payable guardrail of 90 days under footnotes 5 and 29 of the guidance is not triggered as calculated in c). • Step 3 –Identify and apply the range from the relevant matrix segment. Under the pricing matrix in section 5.1 the return of Company B in year X should be 2.5% (+/- 0.5%). • Step 4 – Apply the operating expense cross-check of section 5.2. The operating expense cross-check described in section 5.2 is not triggered because the equivalent return on operating expenses result (10.20%) is within the operating expense cap-and-collar range (10%-60%). • Step 5 – Apply data availability mechanism of section 5.3. Data availability mechanism described in Section 5.3 is not triggered because Country B is not a qualifying jurisdiction. 6. The table below illustrates the calculation of the operating margin of the tested party under the streamlined and simplified approach. Example 2 – Basic fact pattern with the industry Group 3 and the factor intensity classification [D] 7. The facts are the same as in Example 1 except the figures of the profit & loss and balance sheet items calculated on an average basis of Company B in Year X-3 through Year X have changed as follows, and the MNE group produces and sells medical machinery. 8. In order to determine the return of Company B in Year X under the simplified and streamlined approach, the following steps should be undertaken: • Step 1 and Step 2 – Company B falls into Group 3 of the industry groupings and the factor intensity classification of Company B is [D] as illustrated in the table c). The account payable guardrail of 90 days under footnotes 5 and 29 of the guidance is not triggered. • Step 3 – Step 5 – Under the pricing matrix in section 5.1, the return of Company B in year X should be 3 % (+/- 0.5%). The operating expense cross-check described in section 5.2 is not triggered because the equivalent return on operating expenses result (16.67%) is within the operating expense cap-and-collar range (10%-40%), and Data availability mechanism described in Section 5.3 is not triggered because Country B is not a qualifying jurisdiction. 9. The table below illustrates the calculation of the operating margin of the tested party under the streamlined and simplified approach. Example 3 – Application of the Data availability mechanism for qualifying jurisdictions 10. The facts are the same as in Example 2 except that Country B is a qualifying jurisdiction within the meaning of sections 5.2 (operating expense cross-check) and 5.3 (the data availability mechanism) and has a sovereign credit rating for the relevant fiscal year of BB-. 11. As in Example 2, the operating expense cross-check described in section 5.2 is not triggered because the equivalent return on operating expenses result (16.67%) is within the operating expense cap- and-collar range (10%-45%). 12. In accordance with the data availability mechanism, Company B will earn an adjusted return in accordance with the following formula: Adjusted return on sales = ROSTP + (NRAJ x OASTP) 13. ROSTP is 3% (the return on sales percentage of the tested party calculated in accordance with Sections 5.1 and 5.2 where applicable), NRAJ is 1.8% (the net risk adjustment percentage of a jurisdiction with the sovereign credit rating with BB-) and OASTP is ...