In determining this point, where the range comprises results of relatively equal and high reliability, it could be argued that any point in the range satisfies the arm’s length principle. Where comparability defects remain as discussed at paragraph 3.57, it may be appropriate to use measures of central tendency to determine this point (for instance the median, the mean or weighted averages, etc., depending on the specific characteristics of the data set), in order to minimise the risk of error due to unknown or unquantifiable remaining comparability defects.
TPG2022 Chapter III paragraph 3.62
Category: A. Performing a comparability analysis | Tag: Arm’s length range, Central tendency, Comparability analysis, Comparability defects, Interquartile range (IQR), Mean, Mean Weighted averages, Median, Statistical tools, Unquantifiable comparability defects, Weighted averages
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- TPG2022 Chapter III paragraph 3.57It may also be the case that, while every effort has been made to exclude points that have a lesser degree of comparability, what is arrived at is a range of figures for which it is considered, given the process used for selecting...
- TPG2022 Chapter III paragraph 3.60If the relevant condition of the controlled transaction (e.g. price or margin) is within the arm’s length range, no adjustment should be made....
- TPG2022 Chapter III paragraph 3.58A range of figures may also result when more than one method is applied to evaluate a controlled transaction. For example, two methods that attain similar degrees of comparability may be used to evaluate the arm’s length character of a controlled transaction. Each...
- TPG2022 Chapter III paragraph 3.59Where the application of the most appropriate method (or, in relevant circumstances, of more than one method, see paragraph 2.12), produces a range of figures, a substantial deviation among points in that range may indicate that the data used in establishing some of...
- TPG2022 Chapter III paragraph 3.80One question that arises when putting the need for comparability analyses into perspective is the extent of the burden and costs that should be borne by a taxpayer to identify possible comparables and obtain detailed information thereon. It is recognised that the cost...
- TPG2022 Chapter III paragraph 3.63Extreme results might consist of losses or unusually high profits. Extreme results can affect the financial indicators that are looked at in the chosen method (e.g. the gross margin when applying a resale price, or a net profit indicator when applying a transactional...
- TPG2022 Chapter I paragraph 1.74In the first situation the MNE group distributes heating oil to consumers. Analysis of the economically relevant characteristics establishes that the product is undifferentiated, the market is competitive, the market size is predictable, and players are price-takers. In such circumstances, the ability to...
- TPG2022 Chapter III paragraph 3.79The use of multiple year data does not necessarily imply the use of multiple year averages. Multiple year data and averages can however be used in some circumstances to improve reliability of the range. See paragraphs 3.57-3.62 for a discussion of statistical tools....
- EU: Public Country-by-Country Reporting?Proposal directive of public country-by-country reporting in the EU Ministers held an exchange of views (public session) on how to take the proposed directive forward. Tax transparency is a fundamental principle in any democratic society. It enables policy makers to take informed decisions...
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Related Case Law
- Spain vs “Benchmark SA”, November 2021, TEAC, Case No Rec. 4881/2019The tax authorities excluded some of the entities selected by the taxpayer in a benchmark study, as it considered that they did not meet the necessary comparability requirements, and also included some of the excluded entities, as it considered that they were comparable....
- Romania vs “Milk and Dairy” A. SA, September 2020, Supreme Court, Case No 4702/2020In regards of transfer pricing A. SA had two activities – production of dairy products and distribution of milk – that had been subject to an audit by the tax authorities which resulted in an assessment of additional taxable income. The transfer pricing...
- Hungary vs “Auto Parts Ktf”, May 2020, Supreme Court (Kúria), Case No. Kfv.I. 35,618 / 2019/11Auto Parts Ktf’s principal activity is the manufacture and sale of passenger cars and spare parts. Between 1 January 2013 and 31 December 2014, it sold its products to its affiliated undertakings and to unrelated parties. Auto Parts Ktf had prepared transfer pricing...
- Panama vs “Petroleum Wholesale Corp”, September 2020, Administrative Tribunal, Case No TAT-RF-062“Petroleum Wholesale Corp” is engaged in the wholesale of petroleum products, accessories and rolling stock in general in Panama. Following a thorough audit carried out by the Tax Administration in Panama, where discrepancies and inconsistencies had been identified between the transfer pricing documentation...