Delineation is the framework for analysing transactions between associated enterprises and requires taking the following steps:
(i) Identify the objekt transferred in the transaction with specificity and the specific, economically significant risks associated with the transfer
(ii) Identify the full contractual arrangements and other indicia of legal ownership, contractual rights and obligations including contractual assumption of risks in the relations between the associated enterprises;
(iii) Identify the parties performing functions, using assets, and managing risks by means of the functional analysis, and in particular determine which parties control any outsourced functions, and control specific, economically significant risks;
(iv) Confirm the consistency between the terms of contractual arrangements and the conduct of the parties, and determine whether the party assuming economically significant risks under Step 4 (i) of paragraph 1.60, also controls the risks and has the financial capacity to assume the risks;
(v) Delineate the actual controlled transactions in light of the relevant contractual relations and the conduct of the parties, including their relevant contributions of functions, assets and risks, taking into account the framework for analysing and allocating risk under Section D.1.2.1 of Chapter I;
After having accurately delineated the transaction, where possible, determine arm’s length prices for the transactions consistent with each party’s contributions of functions performed, assets used, and risks assumed, unless the guidance in Section D.2 of Chapter I (non-recognition) applies.
TPG 1.33-1.73 and 6.34