Methods 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 pricing. The application of the arm’s length principle is generally based on a comparison of the price, margin or profits from particular controlled transactions with the price, margin or profits from comparable transactions between independent enterprises. In the case of a transactional profit split method, it is based on an approximation of the division of profits that independent enterprises would have expected to realise from engaging in the transaction(s) (see paragraph 2.114).
TPG2022 Chapter II paragraph 2.6
Category: A. Selection of the most appropriate transfer pricing method | Tag: Article 9, Division of profits expected form independent, Most appropriate method (MAM), Transactional profit methods, Transfer pricing methods
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- TPG2022 Chapter II paragraph 2.63A transactional profit method examines the profits that arise from particular controlled transactions. The transactional profit methods for purposes of these Guidelines are the transactional profit split method and the transactional net margin method. Profit arising from a controlled transaction can be a...
- TPG2022 Chapter II paragraph 2.62This Part provides a discussion of transactional profit methods that may be used to approximate arm’s length conditions where such methods are the most appropriate to the circumstances of the case, see paragraphs 2.1 – 2.12. Transactional profit methods examine the profits that...
- 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 paragraph 2.67Finally, the lack of unique and valuable contributions involved in a particular transaction does not automatically imply that the transactional net margin method is the most appropriate method....
- TPG2022 Chapter II paragraph 2.9Moreover, MNE groups retain the freedom to apply methods not described in these Guidelines (hereafter “other methods”) to establish prices provided those prices satisfy the arm’s length principle in accordance with these Guidelines. Such other methods should however not be used in substitution...
- TPG2022 Chapter II paragraph 2.8The guidance at paragraph 2.2 that the selection of a transfer pricing method always aims at finding the most appropriate method for each particular case does not mean that all the transfer pricing methods should be analysed in depth or tested in each...
Related Case Law
- India vs Gulbrandsen Chemicals Ltd., February 2020, High Court, Case No 751 of 2019Gulbrandsen Chemicals manufactures chemicals for industrial customers in the petrochemical and pharmaceutical industry. The Indian Subsidiary, Gulbrandsen India also sold these products to its affiliated enterprises, namely Gulbrandsen Chemicals Inc, USA, and Gulbrandsen EU Limited. In regards of the controlled transactions, the tax...
- Spain vs MAHOU (SAN MIGUEL) S.A., December 2021, Audiencia Nacional, Case No SAN 5537/2021 – ECLI:ES:AN:2021:5537The Mahou (SAN MIGUEL) S.A Group is active in brewing and sale of beers. Penibética de cervezas y bebidas SL and Andaluza de cervezas y bebidas SL are wholly owned by Cervezas Alhambra SL, which again is owned by MAHOU (SAN MIGUEL) S.A....
- Spain vs Transalliance Iberica SA, November 2022, Audiencia Nacional, Case No SAN 5336/2022 – ECLI:EN:AN:2022:5336Transalliance Iberica SA had priced its controlled transactions for the years 2008-2013 by comparing the gross margin achieved on an overall basis with the gross margins of comparable companies. Following an audit, the tax authorities issued a notice of assessment rejecting the method...
- Spain vs Universal Pictures International Spain SL, December 2022, Audiencia Nacional, Case No SAN 5855/2022 – ECLI:EN:AN:2022:5855Universal Pictures International Spain SL is a distributor of films on the Spanish Market. It distributes films both from related parties (Universal Pictures) and from unrelated parties. Following an audit, the Spanish tax authorities issued an assessment where the remuneration received for distribution...
- Italy vs SGL CARBON SPA, May 2023, Supreme Court, Case No 11625/2023SGL CARBON SPA paid interest on loans received from the German parent of the SGL Group. The tax authorities considered, that the interest rate applied to the intra-group loan was significantly higher than the average interest rate applied in the German market. The...