The need to consider the use of intangibles by a party to a controlled transaction involving a sale of goods can be illustrated as follows. Assume that a car manufacturer uses valuable proprietary patents to manufacture the cars that it then sells to associated distributors. Assume that the patents significantly contribute to the value of the cars. The patents and the value they contribute should be identified and taken into account in the comparability analysis of the transaction consisting in the sales of cars by the car manufacturer to its associated distributors, in selecting the most appropriate transfer pricing method for the transactions, and in selecting the tested party. The associated distributors purchasing the cars do not, however, acquire any right in the manufacturer’s patents. In such a case, the patents are used in the manufacturing and may affect the value of the cars, but the patents themselves are not transferred.
TPG2022 Chapter VI paragraph 6.105
Category: C. Transactions involving the use or transfer of intangibles | Tag: Distribution, Intangibles, Limited Risk Distributors (LRD), Most appropriate method (MAM)
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- TPG2022 Chapter VI paragraph 6.199For example, a tested party engaged in the marketing and distribution of goods purchased in controlled transactions may have developed marketing intangibles in its geographic area of operation, including customer lists, customer relationships, and customer data. It may also have developed advantageous logistical...
- TPG2022 Chapter VI paragraph 6.198In a transfer pricing analysis where the most appropriate transfer pricing method is the resale price method, the cost-plus method, or the transactional net margin method, the less complex of the parties to the controlled transaction is often selected as the tested party....
- TPG2022 Chapter VI paragraph 6.196This section provides supplemental guidance for applying the rules of Chapters I – III in situations where one or both parties to a controlled transaction uses intangibles in connection with the sale of goods or the provision of services, but where no transfer...
- TPG2022 Chapter VI paragraph 6.130Comparability, and the possibility of making comparability adjustments, is especially important in considering potentially comparable intangibles and related royalty rates drawn from commercial databases or proprietary compilations of publicly available licence or similar agreements. The principles of Section A.4.3.1 of Chapter III apply...
- TPG2024 Chapter IV Annex III paragraph 4141. Based on the economically relevant characteristics of in-scope transactions and the information available on comparable uncontrolled transactions, the transactional net margin method is chosen as the most appropriate method under the simplified and streamlined approach....
- TPG2024 Chapter IV Annex III paragraph 4242. However, it is recognised that there may be instances (although these may be rare, as the distribution of commodities is excluded from scope) where the application of the comparable uncontrolled price method using internal comparables could be potentially more appropriate to apply...
Related Case Law
- Greece vs “Pharma Distributor Ltd.”, November 2022, Administrative Tribunal, Case No ΔΕΔ 3712/2022Following an audit, the Greek tax authorities determined that the profit of “Pharma Distributor Ltd” for sales and service activities had not been determined in accordance with the arm’s length principle. The tax authorities issued an assessment of additional taxable income, rejecting the...
- Norway vs “Distributor A AS”, March 2021, Tax Board, Case No 01-NS 131/2017A fully fledged Norwegian distributor in the H group was restructured and converted into a Limited risk distributor. The tax authorities issued an assessment where the income of the Norwegian distributor was adjusted to the median in a benchmark study prepared by the...
- Panama vs “Elec Distributor SA”, January 2025, Administrative Court, Exp. 026-2024A Panamanian electronics distributor purchased all goods from related parties abroad and sold primarily to foreign customers in 2014. Tax authorities rejected the Resale Price Method, applied TNMM, and issued a supplementary assessment of approximately B/.546,700. The Administrative Court ruled in 2025 that...
- Korea vs “Electrics Co., Ltd.”, August 2024, High Court, Case no. 2022누55844A Korean subsidiary importing medical equipment, appliances and lighting products from related parties was audited after tax authorities rejected its business-line segmentation and functional analysis. Authorities reclassified activities and selected new comparables, issuing additional assessments. The Korean High Court ruled in favour of...
- Korea vs “Wholesale Distributor Corp” March 2024, Tax Tribunal, Case no 조심 2023 서 8284A Korean subsidiary of a French luxury goods group imported products from a Hong Kong affiliate and applied the resale price method for transfer pricing purposes. The tax authority rejected the original application and issued a reassessment. Korea's Tax Tribunal upheld the RPM...