In order to obtain a complete understanding of the facts and circumstances surrounding the controlled transaction, it generally might be useful to examine data from both the year under examination and prior years. The analysis of such information might disclose facts that may have influenced (or should have influenced) the determination of the transfer price. For example, the use of data from past years will show whether a taxpayer’s reported loss on a transaction is part of a history of losses on similar transactions, the result of particular economic conditions in a prior year that increased costs in the subsequent year, or a reflection of the fact that a product is at the end of its life cycle. Such an analysis may be particularly useful where a transactional profit method is applied. See paragraph 1.151 on the usefulness of multiple year data in examining loss situations. Multiple year data can also improve the understanding of long term arrangements.
TPG2022 Chapter III paragraph 3.76
Category: B. Timing issues in comparability | Tag: Comparability analysis, Long term arrangements, Losses, Multiple year data, Product life cycles
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- TPG2022 Chapter III paragraph 3.77Multiple year data will also be useful in providing information about the relevant business and product life cycles of the comparables. Differences in business or product life cycles may have a material effect on transfer pricing conditions that needs to be assessed in...
- TPG2022 Chapter III paragraph 3.75In practice, examining multiple year data is often useful in a comparability analysis, but it is not a systematic requirement. Multiple year data should be used where they add value to the transfer pricing analysis. It would not be appropriate to set prescriptive...
- TPG2022 Chapter III paragraph 3.78Multiple year data can also improve the process of selecting third party comparables e.g. by identifying results that may indicate a significant variance from the underlying comparability characteristics of the controlled transaction being reviewed, in some cases leading to the rejection of the...
- 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...
- OECD COVID-19 TPG paragraph 11In principle, any form of publicly available information regarding the effect of COVID-19 on the business, industry and controlled transaction may be relevant in ascertaining the arm’s length nature of an enterprise’s transfer pricing policy implemented for FY 2020. The following sources of...
- 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....
- OECD COVID-19 TPG paragraph 10The challenges associated with performing a comparability analysis may vary depending on the impact of the COVID-19 pandemic on the economically relevant characteristics of the accurately delineated transaction. For example, if a controlled transaction is covered by a pre-existing intercompany agreement (for example,...
- OECD COVID-19 TPG paragraph 48Allocation of operating or exceptional costs would follow risk assumption and how third parties would treat such costs. Thus in order to determine which associated enterprise should bear exceptional costs, it would be first necessary to accurately delineate the controlled transaction, which would...
- July 2018: Transfer Pricing Practices in the Oil Sector, and their Potential Application to MiningIn July 2018 Center for Global Development published a study of special transfer pricing practices in the oil sector, and their potential application to hard rock minerals. According to the study, governments of mining countries are vulnerable to investors manipulating transfer prices as...
- Statement released by New Zealand’s Inland Revenue on determining whether an Arrangement is Tax AvoidanceOn 13 June 2013, a Statement was released by New Zealand’s Inland Revenue Service on the interpretation of Tax Avoidance provisions. This statement outlines the Commissioner’s view of the law on tax avoidance in New Zealand and sets out the approach the Commissioner...
Related Case Law
- Denmark vs Maersk Oil and Gas A/S (TotalEnergies EP Danmark A/S), September 2023, Supreme Court, Case No BS-15265/2022-HJR and BS-16812/2022-HJRMaersk Oil and Gas A/S (later TotalEnergies EP Danmark A/S) continued to make operating losses, although the group’s combined oil and gas operations were highly profitable. Following an audit of Maersk Oil, the tax authorities considered that three items did not comply with...
- 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...
- Indonesia vs P.T. Sanken Indonesia Ltd., December 2020, Supreme Court, Case No. 5291/B/PK/Pjk/2020P.T. Sanken Indonesia Ltd. – an Indonesian subsidiary of Sanken Electric Co., Ltd. Japan – paid royalties to its Japanese parent for use of IP. The royalty payment was calculated based on external sales and therefore did not include sales of products to...
- Romania vs “Machinery rental” S.C. A. SRL, September 2020, Supreme Court, Case No 4453/2020An assessment had been issued where the pricing of intra group rental expenses for machinery had been set aside by the tax authorities for FY 2010-2013. By an application filed with the Court of Appeal S.C. A. S.R.L. requested the Court for annulment...