The denominator should be focussed on the relevant indicator(s) of the value of the functions performed by the tested party in the transaction under review, taking account of its assets used and risks assumed. Typically, and subject to a review of the facts and circumstances of the case, sales or distribution operating expenses may be an appropriate base for distribution activities, full costs or operating expenses may be an appropriate base for a service or manufacturing activity, and operating assets may be an appropriate base for capital-intensive activities such as certain manufacturing activities or utilities. Other bases can also be appropriate depending on the circumstances of the case.
TPG2022 Chapter II paragraph 2.93
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By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG 2022 Chapter II: Transfer Pricing Methods | Tag: Denominator - full costs, Denominator - operating assets, Denominator - operating expenses, Most appropriate net profit indicator, Net Profit Indicator/Profit Level Indicator (PLI), Transactional net margin method (TNMM), Transactional profit methods, Transfer pricing methods
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