The first one, which can be qualified as the “additive” approach, consists of the person making the search drawing up a list of third parties that are believed to carry out potentially comparable transactions. Information is then collected on transactions conducted by these third parties to confirm whether they are in effect acceptable comparables, based on the pre-determined comparability criteria. This approach arguably gives well-focused results – all the transactions retained in the analysis are carried out by well-known players in the taxpayer’s market. As indicated above, in order to ensure a sufficient degree of objectivity it is important that the process followed be transparent, systematic and verifiable. The “additive” approach may be used as the sole approach where the person making the search has knowledge of a few third parties that are engaged in transactions that are comparable to the examined controlled transaction. It is worth noting that the “additive” approach presents similarities with the approach followed when identifying internal comparables. In practice, an “additive” approach may encompass both internal and external comparables.
TPG2017 Chapter III paragraph 3.41
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By OECD
Category: OECD Transfer Pricing Guidelines (2017) | Tag: Additive approach, Cherry Picking , Comparability analysis, Comparables search, Transparency, Transparent systematic and verifiable
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- TPG2022 Chapter III paragraph 3.42The second possibility, the “deductive” approach, starts with a wide set of companies that operate in the same sector of activity, perform similar broad functions and do not present economic characteristics that are obviously different. The list is then refined using selection criteria and publicly available information (e.g. from databases,...
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