In order to be considered comparable to a controlled transaction, an uncontrolled transaction need not be identical to the controlled transaction, but must be sufficiently similar that it provides a reliable measure of an arm’s length result. If there are material differences between the controlled and uncontrolled transactions, adjustments must be made if the effect of such differences on prices or profits can be ascertained with sufficient accuracy to improve the reliability of the results. For purposes of this section, a material difference is one that would materially affect the measure of an arm’s length result under the method being applied. If adjustments for material differences cannot be made, the uncontrolled transaction may be used as a measure of an arm’s length result, but the reliability of the analysis will be reduced. Generally, such adjustments must be made to the results of the uncontrolled comparable and must be based on commercial practices, economic principles, or statistical analyses. The extent and reliability of any adjustments will affect the relative reliability of the analysis. See § 1.482-1(c)(1) (Best method rule). In any event, unadjusted industry average returns themselves cannot establish arm’s length results.
§ 1.482-1(d)(2) Standard of comparability.
Category: (d) Comparability, Transfer Pricing Guidelines, US IRC Section 482 on Transfer Pricing, § 1.482-1 Allocation of income and deductions among taxpayers | Tag: Comparability, Comparability adjustments, Comparability defects, Standard of comparability
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Next » Related Guidelines
- TPG2022 Chapter VI paragraph 6.129The principles of paragraphs 3.47 to 3.54 relating to comparability adjustments apply with respect to transactions involving the transfer of intangibles or rights in intangibles. It is important to note that differences between intangibles can have significant economic consequences that may be difficult...
Related Case Law
- Korea vs Corp, October 2001, Supreme Court, Case No 99두3423In Korea the tax authorities usually regarded domestic transactions as better comparables and there were only few cases where transfer pricing had been applied based on foreign transactions. In this case, the Korean Supreme Court confirms that international transactions can be used as...
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- Denmark vs Pharma Distributor A A/S, March 2020, National Court, Case No SKM2020.105.OLRResults in a Danish company engaged in distribution of pharmaceuticals were significantly below the arm’s length range of net profit according to the benchmark study, but by disregarding annual goodwill amortization of DKK 57.1 million, the results were within the arm’s length range....
- Czech Republic vs. M.V., April 2018, Supreme Administrative Court , Case No 3 Afs 105/2017 – 22The reason for the adjustment of the tax base was, among other things, the finding that M.V.sold on 4 January 2010 all the stock of goods of the range of garden supplies to AGROTECHNIKA Vaněk s.r.o. (“Agrotechnika”) at an 80% discount on the...
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