§ 1.482-5(b)(2) Tested party –
Posted on | By Internal Revenue Service
Category: US IRC Section 482 on Transfer Pricing, § 1.482-5 Comparable profits method | Tag: Choice of tested party, Comparable operating profit, Comparable Profits Method (CPM), Net Profit Indicator/Profit Level Indicator (PLI), Operating profits, Tested party, TNMM
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- TPG2022 Chapter II paragraph 2.185 As discussed in these Guidelines, there are concerns regarding the use of the transactional net margin method, in particular that it is sometimes applied without adequately taking into account the relevant differences between the controlled and uncontrolled transactions being compared. Many countries are concerned that the safeguards established for the...
- TPG2022 Chapter II paragraph 2.110 See in particular paragraphs 3.18-3.19 for guidance on the tested party, paragraphs 3.55-3.66 for guidance on the arm’s length range, and paragraphs 3.75-3.79 for guidance on multiple year data....
- TPG2022 Chapter II paragraph 2.105 Other net profit indicators may be appropriate depending on the facts and circumstances of the transactions. For instance, depending on the industry and on the controlled transaction under review, it may be useful to look at other denominators where independent data may exist, such as: floor area of retail points,...
- TPG2022 Chapter II paragraph 2.104 In cases where the net profit is weighted to assets, the question arises how to value the assets, e.g. at book value or market value. Using book value could possibly distort the comparison, e.g. between those enterprises that have depreciated their assets and those that have more recent assets with...
- TPG2022 Chapter II paragraph 2.99 In applying a cost-based transactional net margin method, fully loaded costs are often used, including all the direct and indirect costs attributable to the activity or transaction, together with an appropriate allocation in respect of the overheads of the business. The question can arise whether and to what extent it...
- TPG2022 Chapter II paragraph 2.88 Whether foreign exchange gains and losses should be included or excluded from the determination of the net profit indicator raises a number of difficult comparability issues. First, it needs to be considered whether the foreign exchange gains and losses are of a trading nature (e.g. exchange gain or loss on...
- TPG2022 Chapter II paragraph 2.83 As a matter of principle, only those items that (a) directly or indirectly relate to the controlled transaction at hand and (b) are of an operating nature should be taken into account in the determination of the net profit indicator for the application of the transactional net margin method....
- TPG2022 Chapter II Annex I paragraph 4 Consequently, enterprises performing different functions may have a wide range of gross profit margins while still earning broadly similar levels of net profits. For instance, business commentators note that the transactional net margin method would be less sensitive to differences in volume, extent and complexity of functions and operating expenses....