Tag: Profit split method

A transactional profit split method that identifies the relevant profits to be split for the associated enterprises from a controlled transaction (or controlled transactions that it is appropriate to aggregate under the principles of Chapter III) and then splits those profits between the associated enterprises on an economically valid basis that approximates the division of profits that would have been agreed at arm’s length.

Italy vs SIOT S.p.A. June 2020, Cassazione, Case no Sez. 5 Num. 11837

This case concerns Società Italiana per l’Oleodotto Transalpino Spa (S.I.O.T.) – , which operates the transalpine oil pipeline that crosses Italy, Austria and Germany, with the Austrian subsidiary T.O.O. GmbH and with the German subsidiary D.T.O. GmbH, belonging to the same group of companies. The Italian tax authorities had issued four notices of assessment for FY 2003-2006, related to undeclared revenues, determined in application of the transfer pricing regulations, according to which revenues deriving from […]

Norway vs Orange Business Norway A/S, January 2020, Borgarting Lagmannsrett, Case No 2018-84331

Orange Business Norway AS, a subsidiary of the French Orange Telecom Group, had been issued a tax assessment for FY 2006-2008. According to the Norwegian tax authorities, Orange Business Norway had determined the remuneration by applying a Profit Split Method in a way that closely resembled Global formulary apportionment. The tax authorities also found that a Profit Split approach was not suitable for the case and instead determined the income of Orange Business Norway based […]

2019 Update-UN-Practical-Manual-on-Transfer-Pricing

On 8 April 2019 the UN subcommittee issued it’s first discussion draft on the future updates to the UN Practical-Manual-on-Transfer-Pricing on Financial transactions, BEPS consistency and Risk Assessment and Audit practices. Attachment A: the proposed new Chapter B on Financial Transactions. The draft discusses the importance of corporate financing decisions within multinational groups and how those decisions could lead to tax base The Chapter discusses interaction with rules and measures against base erosion; common types […]

April 2019: UN Manual – Financial Transactions and Profit Splits

A new version of the UN Practical Manual on Transfer Pricing for Developing Countries is due by 2021. According to the mandate the new manual will make further improvements in usability and practical relevance, updates and improvements to existing text, including on Country Practices (Part D) and will have new content, in particular, on financial transactions; profit splits, centralized procurement functions and comparability issues. A draft paper was published 8 April 2019 containing further guidance […]


This paper addresses the first stage and aims at clarifying certain concepts in applying the PSM: (i) when to use the PSM (i.e. in which circumstances it may be considered the most appropriate transfer pricing method) and (ii) how to split the profit based on the concepts described in the revised OECD Guidelines as well as by providing an inventory of recurrent splitting factors. For the avoidance of doubt this report should be regarded as complementary to, and supportive of, the text of the OECD Revised Guidelines on the application of the Transactional Profit Split Method issued in June 2018. The paper is structured as follows: section 2 provides a short description of the profit split method; section 3 seeks to clarify some key concepts related to the use of the profit split method also touching upon some challenging points; and section 4 describes a number of potential splitting factors listed in the Annex.

Revised guidance on the profit split method from the OECD

June 2018 the OECD released revised guidance on the profit split method. The new guidance will be incorporated into the OECD Transfer Pricing Guidelines, replacing the previous text on the transactional profit split method in Chapter II. The revised guidance retains the basic premise that the profit split method should be applied where it is found to be the most appropriate method to the case at hand, but it significantly expands the guidance available to […]

TPG2017 Chapter II Annex II example 16

85. Company A, Company B and Company C, members of the same MNE group, jointly agree to share the “greenfield” development of a new product. In this regard, none of the entities brings existing contributions of value such as pre-existing intangibles to the project. Each associated enterprise will be responsible for developing and manufacturing one of the three key components of the product. 86. In this case, assume that the transactional profit split is found […]

TPG2017 Chapter II Annex II example 15

80. Company A, resident in Country A, and Company B, resident in Country B, are members of an MNE group. Both companies undertake the design and manufacturing of products and their activities in this regard are highly integrated. Additionally, Company A and Company B are responsible for the marketing and distribution of the products to unrelated customers in Country A and in Country B, respectively. 81. Company A and Company B enter into an agreement […]

TPG2017 Chapter II Annex II example 14

74. Below are some illustrations of the effect of choosing a measure of profits to determine the relevant profits to be split when applying a transactional profit split Scenario 1 74. Assume A and B are two associated enterprises situated in two different tax jurisdictions. Both manufacture the same widgets and incur expenditure that results in the creation of a unique and valuable intangible which they can mutually use. For the purpose of this example, […]

TPG2017 Chapter II Annex II example 13

65. Company A, resident in Country A, is the parent company of Retail Group, an MNE group engaged in the retail fashion industry. Over the years, Company A has developed know-how and has enhanced the value of the trademark and associated goodwill of its business through intensive marketing activities. In this case, the intangibles developed and owned by Company A do not qualify as hard-to-value intangibles. 66. To expand the business into the Country B […]

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