Tag: RPM method

The Resale Price Method analyzes the price of a product that a related sales company charges to an unrelated customer (i.e. the resale price) to determine an arm’s length gross margin, which the sales company retains to cover its sales, general and administrative (SG&A) expenses, and still make an appropriate profit. The appropriate profit level is based on the functions it performs and the risks it incurs. The remainder of the product’s price is regarded as the arm’s length price for the inter-company transactions between the sales company (i.e. Associated Enterprise 2) and a related company (i.e. Associated Enterprise 1). As the method is based on arm’s length gross profits rather than directly determining arm’s length prices (as with the CUP Method) the Resale Price Method requires less direct transactional (product) comparability than the CUP Method.

Japan vs. Publisher Corp, April 2017, Tokyo District Court

Japan vs. Publisher Corp, April 2017, Tokyo District Court

A Japanese company entered into a transaction with a foreing group company to import English-language learning materials into Japan. The learning materials were then resold to Japanese customers. The Japanese tax authority found that the resale price method should be used for setting the arm’s-length price for the transaction. The arm’s-length price for the controlled transaction was the price at which the Japanese company resold the English-language learning materials to customers, minus a normal profit margin multiplied by the price. The “normal profit margin” in this case was found to be the weighted average ratio of gross margin to the total revenue for multiple transactions, where unrelated parties imported the same as the English-language learning materials, or goods of a similar sort, and then resold them to customers. The tax authority held that unrelated parties importing and selling learning materials should be considered comparable transactions, and appropriate adjustments could be made to account for difference. However, an important difference between ... Continue to full case
India vs. L’oreal India Pvt. Ltd. May 2016, Income Tax Appellate Tribunal

India vs. L’oreal India Pvt. Ltd. May 2016, Income Tax Appellate Tribunal

L’oreal in India is engaged in manufacturing and distribution of cosmetics and beauty products. In respect of the distribution L’oreal had applied the RPM by benchmarking the gross margin of at 4o.80% against that of comparables at 14.85%. The tax administration rejected the RPM method on the basis that the L’oreal India was consistently incurring losses and the gross margins cannot be relied upon because of product differences in comparables. Accordingly, the tax administration applied Transactional Net Margin Method. L’oreal argued that the years of losses was due to a market penetration strategy in India – not non-arm’s-length pricing of transactions. The comparables had been on the Indian market much longer than L’oreal and had established themselves firmly in the Indian market. The Appellate Tribunal observed that L’oreal India buys products from its parent and sells to unrelated parties without any further processing. According to the OECD TPG, in such a situation, RPM is the most appropriate transfer pricing method. L’oreal India had also produced evidence from its parent that margin earned by the ... Continue to full case
Australia vs. Roche July 2008, Administrative Appeals Tribunal NT 2005/7 & 56-65

Australia vs. Roche July 2008, Administrative Appeals Tribunal NT 2005/7 & 56-65

The Applicant is an Australian subsidiary of the Roche Group, the parent company of which is a resident of Switzerland. Roche is a major pharmaceutical corporation with integrated operations in many countries. It carries on research and development, manufacturing, marketing, selling and distribution of pharmaceuticals, vitamins, chemicals, diagnostic and other products. During the 1993 to 2003 income years (the relevant income years) the Applicant carried on business in Australia marketing, selling and distributing Roche products through three divisions: the Prescription Division (dealing in prescribed drugs), the Consumer Health Division (dealing in over the counter pharmaceuticals) and Diagnostic Products (dealing in diagnostic equipment and supplies). Australia-vs-ROCHE-PRODUCTS-PTY-LTD-July-2008-Administrative-Appeals-Tribunal ... Continue to full case