There are situations where transactional profit methods are found to be more appropriate than traditional transaction methods. For example, cases where each of the parties makes unique and valuable contributions in relation to the controlled transaction, or where the parties engage in highly integrated activities, may make a transactional profit split more appropriate than a one-sided method. As another example, where there is no or limited publicly available reliable gross margin information on third parties, traditional transaction methods might be difficult to apply in cases other than those where there are internal comparables, and a transactional profit method might be the most appropriate method in view of the availability of information.
TPG2022 Chapter II paragraph 2.4
Category: A. Selection of the most appropriate transfer pricing method | Tag: Availability of information, Highly integrated activities, Most appropriate method (MAM), Transactional profit methods, Unique and valuable contributions
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- TPG2022 Chapter II paragraph 2.65A transactional net margin method is unlikely to be reliable if each party to a transaction makes unique and valuable contributions, see paragraph 2.4. In such a case, a transactional profit split method will generally be the most appropriate method, see paragraph 2.119....
- TPG2022 Chapter II paragraph 2.6Methods that are based on profits can be accepted only insofar as they are compatible with Article 9 of the OECD Model Tax Convention, especially with regard to comparability. This is achieved by applying the methods in a manner that approximates arm’s length...
- TPG2022 Chapter II paragraph 2.2The selection of a transfer pricing method always aims at finding the most appropriate method for a particular case. For this purpose, the selection process should take account of the respective strengths and weaknesses of the OECD recognised methods; the appropriateness of the...
- TPG2022 Chapter II paragraph 2.1Parts II and III of this chapter respectively describe “traditional transaction methods” and “transactional profit methods” that can be used to establish whether the conditions imposed in the commercial or financial relations between associated enterprises are consistent with the arm’s length principle. Traditional...
- TPG2022 Chapter II Annex II example 520. WebCo is a member of an MNE group that develops IT solutions for business customers. Recently, WebCo designed the architecture of a web crawler to collect pricing data from internet sites. WebCo has written the code of the program so it is...
- TPG2022 Chapter II Annex II example 25. A Co, a member of T Group, is a company incorporated in Country A whose principal activity is the growing and processing of tea. A Co identifies, acquires and cultivates land with extremely good soil for growing tea. A Co has developed...
Related Case Law
- India vs Toyota Kirloskar Auto Parts Private Limited, March 2020, Income Tax Appellate Tribunal – BANGALORE, Case No IT(TP) No.1915/Bang/2017 & 3377/Bang/2018Toyota Kirloskar Auto Parts Private Limited manufactures auto parts and sold them to Toyota Kirloskar Motors Limited, another Indian corporation in the Toyota Group. In FY 2013-14 Toyota Kirloskar Auto Parts Private Limited paid a 5% royalty to the Japanese parent Toyota Motor Corporation...
- India vs Toyota Kirloskar Motor Pvt. Ltd., January 2024, Income Tax Appellate Tribunal – BANGALORE, Case No IT(TP)A No.863/Bang/2023Toyota Kirloskar Motor Pvt. Ltd., challenged an assessment made by the tax authorities for FY 2018-19 regarding the separate benchmarking of royalty payments to its Associated Enterprises (AEs). The main issue related to whether royalty payments should be benchmarked separately or subsumed within...