One question that arises in cases where the net profit indicator is weighted against sales is how to account for rebates and discounts that may be granted to customers by the taxpayer or the comparables. Depending on the accounting standards, rebates and discounts may be treated as a reduction of sales revenue or as an expense. Similar difficulties can arise in relation to foreign exchange gains or losses. Where such items materially affect the comparison, the key is to compare like with like and follow the same accounting principles for the taxpayer and for the comparables.
TPG2022 Chapter II paragraph 2.97
Posted on |
By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG 2022 Chapter II: Transfer Pricing Methods | Tag: Accounting standards, Discounts and rebates, EBIT margin, Key is to compare like with like, Net Profit Indicator/Profit Level Indicator (PLI), Transactional net margin method (TNMM), Transactional profit methods, Transfer pricing methods
« Prev |
Next » Related Guidelines
- TPG2022 Chapter II Annex I paragraph 1[See Chapter II, Part III, Section B of these Guidelines for general guidance on the application of the transactional net margin method. The assumptions about arm’s length arrangements in the following examples are intended for illustrative purposes only and should not be taken as prescribing adjustments and arm’s length arrangements...
- TPG2022 Chapter II paragraph 2.89For financial activities where the making and receiving of advances constitutes the ordinary business of the taxpayer, it will generally be appropriate to consider the effect of interest and amounts in the nature of interest when determining the net profit indicator....
- TPG2022 Chapter II Annex II example 1580. Company A, resident in Country A, and Company B, resident in Country B, are members of an MNE group. Both companies undertake the design and manufacturing of products and their activities in this regard are highly integrated. Additionally, Company A and Company B are responsible for the marketing and...
- TPG2022 Chapter II paragraph 2.98Cost-based indicators should only be used in those cases where costs are a relevant indicator of the value of the functions performed, assets used and risks assumed by the tested party. In addition, the determination of what costs should be included in the cost base should derive from a careful...
- TPG2022 Chapter II Annex II example 1151. The success of an electronics product is linked to the innovative technological design both of its electronic processes and of its major component. That component is designed and manufactured by associated company A; is transferred to associated company B which designs and manufactures the rest of the product; and is...
- OECD COVID-19 TPG paragraph 85The materiality of the change in economically relevant circumstances created by the impact of government assistance available in a market may impose additional challenges to the comparability analysis. It may for example render it more difficult to apply the comparability analysis through the utilisation and/or the application of a particular...
- TPG2022 Chapter III paragraph 3.38The identification of potential comparables has to be made with the objective of finding the most reliable data, recognising that they will not always be perfect. For instance, independent transactions may be scarce in certain markets and industries. A pragmatic solution may need to be found, on a case-by-case basis,...
- TPG2022 Chapter II paragraph 2.91Whether start-up costs and termination costs should be included in the determination of the net profit indicator depends on the facts and circumstances of the case and on whether in comparable circumstances, independent parties would have agreed either for the party performing the functions to bear the start-up costs and...
- TPG2022 Chapter II paragraph 2.131Where each party to the transaction legally owns unique and valuable intangibles that are relevant to the transaction, it will also be necessary to consider whether, under the accurate delineation of the transaction, they each assume the economically significant risks relating to those intangibles, e.g. risks related to development, obsolescence,...
- TPG2022 Chapter I paragraph 1.41For a discussion of the relevance of these factors for the application of particular pricing methods, see the consideration of those methods in Chapter II....