§ 1.482-6(c)(2)(ii) Comparability and reliability considerations –
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By Internal Revenue Service
Category: US IRC Section 482 on Transfer Pricing, § 1.482-6 Profit split method | Tag: Best Method Rule, Comparable profit split method, Profit split method (PSM)
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- TPG2022 Chapter II paragraph 2.125The accurate delineation of the actual transaction will be important in determining whether a transactional profit split is potentially applicable. This process should have regard to the commercial and financial relations between the associated enterprises, including an analysis of what each party to the transaction does, and the context in...
- TPG2022 Chapter II paragraph 2.123A weakness of the transactional profit split method relates to difficulties in its application. On first review, the transactional profit split method may appear readily accessible to both taxpayers and tax administrations because it tends to rely less on information about independent enterprises. However, associated enterprises and tax administrations alike...
- TPG2022 Chapter II paragraph 2.122A further strength of the transactional profit split method is that all relevant parties to the transaction are directly evaluated as part of the pricing of the transaction, that is, the contributions of each party to the transaction are specifically identified and their relative values measured in order to determine...
- TPG2022 Chapter II paragraph 2.121Another strength of the transactional profit split method is that it can offer flexibility by taking into account specific, possibly unique, facts and circumstances of the associated enterprises that may not be present in independent enterprises. Moreover, where there is a high degree of uncertainty for each of the parties...
- TPG2022 Chapter II paragraph 2.120The transactional profit split method can also provide a solution for highly integrated operations in cases for which a one-sided method would not be appropriate. See Section C.2.2.2, below....
- TPG2022 Chapter II paragraph 2.119The main strength of the transactional profit split method is that it can offer a solution for cases where both parties to a transaction make unique and valuable contributions (e.g. contribute unique and valuable intangibles) to the transaction. In such a case independent parties might effectively price the transaction in...
- TPG2022 Chapter II paragraph 2.118While there is no requirement in these Guidelines to undertake exhaustive analysis or testing of every method in each case, the selection of the most appropriate method should take into account the relative appropriateness and reliability of the selected method as compared to other methods which could be used....
- TPG2022 Chapter VI paragraph 6.212In appropriate circumstances, transfer pricing methods or valuation techniques not dependent on the identification of reliable comparable uncontrolled transactions may also be utilised to determine arm’s length conditions for the sale of goods or the provision of services where intangibles are used in connection with the transaction. The alternative selected...
- TPG2022 Chapter VI paragraph 6.211In applying a profit split method in a case involving the use of intangibles, care should be taken to identify the intangibles in question, to evaluate the manner in which those intangibles contribute to the creation of value, and to evaluate other income producing functions performed, risks assumed and assets...
- TPG2022 Chapter VI paragraph 6.210Section C in Part III of Chapter II contains guidance to be considered in applying transactional profit split methods. That guidance is fully applicable to matters involving the use of intangibles in connection with the sale of goods or the provision of services in controlled transactions....