Íslenska kalkþörungafélagið ehf. ("the Icelandic Limestone Algae Company") operated a calcified algae factory in Iceland, harvesting seaweed from the seabed, cleaning, drying and exporting it almost entirely to its Irish parent company, Marigot Ltd. Marigot Ltd. further processed the raw material in ... Read more

Cargill Bulgaria sold wheat, corn, and other agricultural goods to related Cargill entities in Switzerland and the Netherlands. The Bulgarian tax authority applied TNMM using a return-on-sales profit level indicator, benchmarking against five comparables with an interquartile range of 1.21–1.79%, and assessed additional corporate tax exceeding one million leva. Bulgaria's Supreme Administrative Court ruled in favour of the tax authority and remanded the case for re-examination ... Read more

Delmonte Kenya, an integrated pineapple producer and exporter, argued it should be characterised as a routine cost-plus producer with residual profits attributed to foreign group entities. The Kenya Revenue Authority challenged the pricing, functional characterisation, and documentation, asserting Delmonte Kenya bore key risks and created core value. The Tax Appeal Tribunal ruled in favour of the tax authority in January 2026, rejecting the taxpayer's tested party selection and benchmarking approach ... Read more

A Slovak agricultural company acting as both lender and borrower in intra-group loan arrangements charged interest at 0.6 per cent on loosely structured agreements with no fixed terms. The tax authority found this rate failed the arm's length standard given the borrowers' weak financial position and high credit risk, adjusted the rates using National Bank of Slovakia sector averages, and increased the corporate income tax base. The Administrative Court upheld the assessment in full ... Read more

31 May 2025 the Dutch tax authorities issued guidance on the application of the cost-plus method, and specifically the cost basis used. The cost-plus method is one of the methods used to determine arm’s-length prices for mutual supplies of goods and services between affiliated entities. The memorandum focuses on the gross cost-plus method and, in particular, the more commonly used in practice net cost-plus method. The memorandum focuses specifically on the basis on which the cost-plus margin is calculated. The inclusion or exclusion of raw materials from the basis is a particular point of attention. Click here for Unofficial English translation Click here for other translation ... Read more

An Icelandic producer of calcareous algae sold its production to its Irish parent company using a cost-plus method that excluded payroll expenses and depreciation from the cost base. The Icelandic tax authorities rejected the approach as non-compliant with OECD guidelines and found the transfer pricing documentation insufficient. The District Court ruled in favour of the tax authorities in February 2025, upholding the assessments covering tax years 2016 to 2020 ... Read more

An Italian aircraft manufacturer wholly owned by a Swiss parent had applied the CUP method to price its controlled transactions. The Italian tax authorities rejected this approach and substituted the cost-plus method for financial years 2008 and 2009. The Supreme Court dismissed the authorities' appeal in February 2025, affirming that the CUP method was properly applied and that an implicit preference for CUP persists under the OECD Guidelines despite the removal of a formal hierarchy ... Read more

A Hungarian company's German permanent establishment provided installation and assembly services to third parties in Germany. Following an audit for FY 2017, German tax authorities applied the cost-plus method under BsGaV Section 32 to assess additional taxable income. The taxpayer challenged the assessment successfully before the Tax Court. Germany's Federal Tax Court upheld that ruling in December 2024, confirming that Section 1(5) AStG is an income correction provision, not an independent basis for determining PE profits ... Read more

A Hungarian company's German permanent establishment performed meat-cutting services and paid an administrative fee calculated as a percentage of net sales. German tax authorities rejected the fee arrangement and applied the cost-plus method under the BsGaV ordinance. The Federal Tax Court upheld the lower court's ruling in favour of the taxpayer, finding the authorities lacked a valid legal basis to override the PE's declared profits ... Read more

A Greek elevator company used TNMM for related-party sales, but the tax authority substituted a cost plus method using internal third-party comparables, raising taxable income. The Administrative Court largely upheld the authority's approach in 2024, finding internal comparables reliable after adjustments. However, it annulled the adjustment for sales to a Turkish affiliate, ruling that market differences and a market-penetration strategy made those sales incomparable to Swedish or Czech transactions ... Read more

Three UK Thomson Reuters group companies were assessed over £167 million in diverted profits tax for FY 2015–2018, after HMRC argued their IP services to a Swiss affiliate were underpriced. The companies contended the assessments conflicted with a 2013 advance pricing agreement. The UK Court of Appeal found in favour of the tax authority, ruling the DPT assessments were not inconsistent with the APA, which had expired before the assessment period ... Read more

A Malaysian offshore vessel chartering company paid a related Labuan ship-owner a 35% cost-plus mark-up for charter hire and crew management services. The tax authority rejected the comparables and method selected, issuing additional assessments under Section 140A using the transactional net margin method. The Malaysia High Court in 2024 dismissed the taxpayer's judicial review application, finding the assessments were not unlawful, irrational, or unreasonable ... Read more

A Czech company challenged the tax authority's use of the cost plus method to price low value-adding intra-group services, arguing the CUP method should have been applied instead. The Regional Court and Supreme Administrative Court both confirmed that CUP holds no automatic superiority over other methods and is preferred only where reliably applicable. The court upheld the tax authority's assessment, ruling in favour of the administration ... Read more

A Kenyan subsidiary of a UK tea trading group faced a Kshs 1.4 billion transfer pricing assessment covering 2015–2018, arising from undocumented transactions with a Pakistani related party, Tapal Tea PVT Ltd. The tax authority applied TNMM after identifying common directorship as evidence of control and classified the company's auction licence as a valuable intangible. The Kenya Tax Appeals Tribunal dismissed the appeal in 2024, upholding the assessment in full ... Read more

A Swiss hydropower company applied the cost-plus method to invoice services to its shareholder partners. The tax authority disputed whether profit taxes should form part of the cost base. The Federal Supreme Court ruled in 2024 that taxes constitute actual costs borne by the entity and must be included in the full cost base when applying the cost-plus method under Art. 58 para. 3 DBG, deciding in favour of the taxpayer ... Read more

A Korean hygiene product manufacturer sold goods to forty-five related parties at cost plus 8%, dispatched employees abroad, and transferred know-how royalty-free. The tax authority assessed additional profits for non-arm's length pricing and unpaid royalties and service fees. The Korea Tax Tribunal ruled mostly in favour of the tax authority in May 2024, rejecting the taxpayer's reliance on internal comparables and idle-capacity rationale under the cost-plus method ... Read more

A Colombian auto manufacturer was assessed additional taxable income for FY2011 after the tax authority challenged its use of prior-year comparables and comparability adjustments for intra-group inventory purchases. The Administrative Court ruled for the taxpayer, and the Supreme Administrative Court upheld that decision in 2024, confirming that the benchmark study, transfer pricing method, and comparability adjustments applied were reasonable and acceptable ... Read more

UFI Filters SpA paid related Chinese companies for filter supplies using cost-plus mark-ups. Italian tax authorities challenged the arm's length nature of those mark-ups using a benchmark of six comparables. After mixed lower court rulings, Italy's Supreme Court dismissed the tax authority's appeal in April 2024, upholding the Regional Tax Commission's finding that the comparable companies were insufficiently comparable under the cost-plus method ... Read more

Mercer Consulting India paid a related party for administrative services, which were included in the cost base used to calculate its cost-plus remuneration for IT-enabled services. The Indian tax authorities disallowed these deductions, but the Income Tax Appellate Tribunal and the High Court of New Delhi ruled in 2024 that removing costs from the base without adjusting the recoverable amount would erode the tax base, deciding in favour of the taxpayer ... Read more

A French manufacturer and distributor of utility meters was assessed for tax years 2012 and 2013 after authorities alleged profits had been shifted to a Hong Kong group distributor via mispriced intercompany transactions. The Administrative Court of Appeal dismissed the tax authority's appeal in January 2024, upholding the lower court's annulment of the assessment and confirming the taxpayer's transfer pricing approach was arm's length ... Read more

ECP Kenya Limited charged a cost-plus mark-up for data and analysis services to its associated entity ECP Manager LP, arguing its role was routine support. The Kenya Revenue Authority rejected this characterisation, citing the Managing Director's involvement in investment decisions, and applied a profit split method instead. The Tax Appeals Tribunal dismissed ECP Kenya's appeal and upheld the authority's assessment in November 2023 ... Read more

ECP Kenya Limited charged a cost-plus mark-up for data and analysis services to its associated entity ECP Manager LP, arguing its role was routine support. The Kenya Revenue Authority rejected this characterisation, citing the Managing Director's involvement in investment decisions, and applied a profit split method instead. The Tax Appeals Tribunal dismissed ECP Kenya's appeal and upheld the authority's assessment in November 2023 ... Read more

A Swiss company paid related parties for intra-group services priced using the internal CUP method. Tax authorities rejected this approach and applied the cost-plus method instead, issuing a revised assessment. The Federal Administrative Court overturned this in 2023, ruling that the CUP method takes precedence under OECD guidelines when comparable uncontrolled prices are available, finding the authorities had not complied with those guidelines ... Read more

A Polish salmon processing subsidiary within a Netherlands-headquartered group had its operating expenses disallowed by tax authorities, who found the cost plus method was incorrectly applied and accounting records unreliable. The Administrative Court sided with the authorities, and the Supreme Administrative Court dismissed the company's appeal in April 2023, confirming the PLN 29.6 million adjustment to inflated related-party costs ... Read more

A Bulgarian steel producer in the METINVEST group faced additional taxable income assessments following a transfer pricing audit. The Administrative Court annulled the assessment and declared OECD Guidelines inapplicable in Bulgaria. On appeal in 2023, the Supreme Administrative Court upheld the annulment in favour of the taxpayer but corrected the lower court, confirming that OECD Transfer Pricing Guidelines do carry legal weight under Bulgarian law ... Read more

An Italian snow groomer manufacturer faced a transfer pricing reassessment after tax authorities rejected the group's cost-plus method and applied a CUP approach, citing a 11% intra-group mark-up against 20–32% charged to independent distributors. After losing at first instance, Prinoth S.p.A. appealed. Italy's Supreme Administrative Court remanded the case for re-examination in December 2022, leaving the method selection question unresolved ... Read more

A Polish company selling metal enclosures and boxes to related parties used the cost-plus method in its transfer pricing documentation. The tax authority rejected this approach and applied TNMM, benchmarking EBIT margins over three years to establish additional taxable income of PLN 1.8 million. Poland's Supreme Administrative Court largely upheld the authority's position in 2022, but found the income adjustment incorrectly included transactions not subject to arm's length rules ... Read more

Internal comparable. (i) Company A, a U.S. corporation, and its subsidiaries perform computer consulting services relating to systems integration and networking for business clients in various countries. Company A and its subsidiaries render only consulting services and do not manufacture or distribute computer hardware or software to clients. The controlled group is organized according to industry specialization, with key industry specialists working for Company A. These personnel typically form the core consulting group that teams with consultants from the local-country subsidiaries to serve clients in the subsidiaries’ respective countries. (ii) On some occasions, Company A and its subsidiaries undertake engagements directly for clients. On other occasions, they work as subcontractors for uncontrolled parties on more extensive consulting engagements for clients. In undertaking the latter engagements with third-party consultants, Company A typically prices its services at four times the compensation costs of its consultants, defined as the consultants’ base salary plus estimated fringe benefits, as defined in this table: Category Rate ... Read more

Operating loss by reference to total services costs. The facts and analysis are the same as in Example 1, except that an unrelated Company C, instead of Company A, renders similar services to uncontrolled parties and publicly available information indicates that Company C earned a gross services profit markup of 10% on its time, materials and certain specified overhead in providing those services. As in Example 1, Company A still provides services for its Country X subsidiary, Company B. In accordance with the requirements in paragraph (e)(3)(ii) of this section, the taxpayer performs additional analysis and restates the results of Company A’s controlled services transaction with its Country X subsidiary, Company B, in the form of a markup on Company A’s total services costs. This analysis by reference to total services costs shows that Company A generated an operating loss on the controlled services transaction, which indicates that functional differences likely exist between the controlled services transaction performed by Company A and uncontrolled services ... Read more

Inability to adjust for differences in comparable transactional costs. The facts are the same as in Example 1, except that Company A’s staff that rendered the services to Company B consisted primarily of engineers in training status or on temporary rotation from other Company A subsidiaries. In addition, the Company B network incorporated innovative features, including specially designed software suited to Company B’s requirements. The use of less-experienced personnel and staff on temporary rotation, together with the special features of the Company B network, significantly increased the time and costs associated with the project as compared to time and costs associated with similar projects completed for uncontrolled customers. These factors constitute material differences between the controlled and the uncontrolled transactions that affect the determination of Company A’s comparable transactional costs associated with the controlled services transaction, as well as the gross services profit markup. Moreover, it is not possible to perform reliable adjustments for these differences on the basis of the ... Read more

Internal comparable. (i) Company A designs and assembles information-technology networks and systems. When Company A renders services for uncontrolled parties, it receives compensation based on time and materials as well as certain other related costs necessary to complete the project. This fee includes the cost of hardware and software purchased from uncontrolled vendors and incorporated in the final network or system, plus a reasonable allocation of certain specified overhead costs incurred by Company A in providing these services. Reliable accounting records maintained by Company A indicate that Company A earned a gross services profit markup of 10% on its time, materials and specified overhead in providing design services during the year under examination on information technology projects for uncontrolled entities. (ii) Company A designed an information-technology network for its Country X subsidiary, Company B. The services rendered to Company B are similar in scope and complexity to services that Company A rendered to uncontrolled parties during the year under examination ... Read more

The principles of this paragraph (e) are illustrated by the following examples: ... Read more

The degree of consistency in accounting practices between the controlled transaction and the uncontrolled comparables that materially affect the gross services profit markup affects the reliability of the results under this method. Thus, for example, if differences in cost accounting practices would materially affect the gross services profit markup, the ability to make reliable adjustments for such differences would affect the reliability of the results obtained under this method. Further, reliability under this method depends on the extent to which the controlled and uncontrolled transactions reflect consistent reporting of comparable transactional costs. For purposes of this paragraph (e)(3)(iii)(B), the term comparable transactional costs includes the cost of acquiring tangible property that is transferred (or used) with the services, to the extent that the arm’s length price of the tangible property is not separately evaluated as a controlled transaction under another provision ... Read more

The reliability of the results derived from the cost of services plus method is affected by the completeness and accuracy of the data used and the reliability of the assumptions made to apply this method. See § 1.482-1(c) (Best method rule) ... Read more

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If there are material differences between the controlled and uncontrolled transactions that would affect the gross services profit markup, adjustments should be made to the gross services profit markup earned in the comparable uncontrolled transaction according to the provisions of § 1.482-1(d)(2). For this purpose, consideration of the comparable transactional costs associated with the functions performed and risks assumed may be necessary, because differences in the functions performed are often reflected in these costs. If there are differences in functions performed, however, the effect on gross services profit of such differences is not necessarily equal to the differences in the amount of related comparable transactional costs. Specific examples of the factors that may be particularly relevant to this method include – (1) The complexity of the services; (2) The duration or quantitative measure of services; (3) Contractual terms (for example, scope and terms of warranties or guarantees provided, volume, credit and payment terms, allocation of risks, including any contingent-payment terms); (4) Economic circumstances; and ... Read more

Comparability under this method is less dependent on close similarity between the services provided than under the comparable uncontrolled services price method. Substantial differences in the services may, however, indicate significant functional differences between the controlled and uncontrolled taxpayers. Thus, it ordinarily would be expected that the controlled and uncontrolled transactions would involve services of the same general type (for example, information-technology systems design). Furthermore, if a significant amount of the controlled taxpayer’s comparable transactional costs consists of service costs incurred in a tax accounting period other than the tax accounting period under review, the reliability of the analysis would be reduced. In addition, significant differences in the value of the services rendered, due for example to the use of valuable intangible property, may also affect the reliability of the comparison. Finally, the reliability of profit measures based on gross services profit may be adversely affected by factors that have less effect on prices. For example, gross services profit may ... Read more

The degree of comparability between controlled and uncontrolled transactions is determined by applying the comparability provisions of § 1.482-1(d). A service renderer’s gross services profit provides compensation for performing services related to the controlled services transaction under review, including an operating profit for the service renderer’s investment of capital and assumptions of risks. Therefore, although all of the factors described in § 1.482-1(d)(3) must be considered, comparability under this method is particularly dependent on similarity of services or functions performed, risks borne, intangible property (if any) used in providing the services or functions, and contractual terms, or adjustments to account for the effects of any such differences. If possible, the appropriate gross services profit markup should be derived from comparable uncontrolled transactions of the same taxpayer participating in the controlled services transaction because similar characteristics are more likely to be found among services provided by the same service provider than among services provided by other service providers. In the absence ... Read more

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Whether results derived from the application of this method are the most reliable measure of the arm’s length result must be determined using the factors described under the best method rule in § 1.482-1(c) ... Read more

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See § 1.482-1(e)(2) for determination of an arm’s length range ... Read more

Comparable transactional costs consist of the costs of providing the services under review that are taken into account as the basis for determining the gross services profit markup in comparable uncontrolled transactions. Depending on the facts and circumstances, such costs typically include all compensation attributable to employees directly involved in the performance of such services, materials and supplies consumed or made available in rendering such services, and may include as well other costs of rendering the services. Comparable transactional costs must be determined on a basis that will facilitate comparison with the comparable uncontrolled transactions. For that reason, comparable transactional costs may not necessarily equal total services costs, as defined in paragraph (j) of this section, and in appropriate cases may be a subset of total services costs. Generally accepted accounting principles or Federal income tax accounting rules (where Federal income tax data for comparable transactions or business activities are available) may provide useful guidance but will not conclusively establish the appropriate ... Read more

The appropriate gross services profit is computed by multiplying the controlled taxpayer’s comparable transactional costs by the gross services profit markup, expressed as a percentage of the comparable transactional costs earned in comparable uncontrolled transactions ... Read more

The cost of services plus method measures an arm’s length price by adding the appropriate gross services profit to the controlled taxpayer’s comparable transactional costs ... Read more

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The cost of services plus method evaluates whether the amount charged in a controlled services transaction is arm’s length by reference to the gross services profit markup realized in comparable uncontrolled transactions. The cost of services plus method is ordinarily used in cases where the controlled service renderer provides the same or similar services to both controlled and uncontrolled parties. This method is ordinarily not used in cases where the controlled services transaction involves a contingent-payment arrangement, as described in paragraph (i)(2) of this section ... Read more

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Cost of services plus method preferred to other methods. (i) FP designs and manufactures consumer electronic devices that incorporate advanced technology. In year 1, FP introduces Product X, an entertainment device targeted primarily at the youth market. FP’s wholly-owned, exclusive U.S. distributor, USSub, sells Product X in the U.S. market. USSub hires an independent marketing firm, Agency A, to promote Product X in the U.S. market. Agency A has successfully promoted other electronic products on behalf of other uncontrolled parties. USSub executes a one-year, renewable contract with Agency A that requires it to develop the market for Product X, within an annual budget set by USSub. In years 1 through 3, Agency A develops advertising, buys media, and sponsors events featuring Product X. Agency A receives a markup of 25% on all expenses of promoting Product X, with the exception of media buys, which are reimbursed at cost. During year 3, sales of Product X decrease sharply, as Product X ... Read more

Cost plus method preferred to comparable profits method. (i) USS is a U.S. company that manufactures machine tool parts and sells them to its foreign parent corporation, FP. Four U.S. companies are identified that also manufacture various types of machine tool parts but sell them to uncontrolled purchasers. (ii) Except for some differences in payment terms, the manufacture and sales of machine tool parts by the four uncontrolled companies are closely similar to the controlled transactions in terms of the functions performed and risks assumed. Reliable adjustments can be made for the differences in payment terms. In addition, sufficiently detailed accounting information is available to permit adjustments to be made for differences between the controlled transaction and the uncontrolled comparables in accounting methods and in the reporting of costs between cost of goods sold and operating expenses. (iii) There is close functional similarity between the controlled and uncontrolled transactions and reliable adjustments can be made for material differences that would ... Read more