The rate of return on capital employed is the ratio of operating profit to operating assets. The reliability of this profit level indicator increases as operating assets play a greater role in generating operating profits for both the tested party and the uncontrolled comparable. In addition, reliability under this profit level indicator depends on the extent to which the composition of the tested party’s assets is similar to that of the uncontrolled comparable. Finally, difficulties in properly valuing operating assets will diminish the reliability of this profit level indicator.
§ 1.482-5(b)(4)(i) Rate of return on capital employed.
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By Internal Revenue Service
Category: US IRC Section 482 on Transfer Pricing, § 1.482-5 Comparable profits method | Tag: Comparable Profits Method (CPM), Net Profit Indicator/Profit Level Indicator (PLI), ROCE (Return On Capital Employed), Transactional net margin method (TNMM)
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