The 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, such as broadening the search and using information on uncontrolled transactions taking place in the same industry and a comparable geographical market, but performed by third parties that may have different business strategies, business models or other slightly different economic circumstances; information on uncontrolled transactions taking place in the same industry but in other geographical markets; or information on uncontrolled transactions taking place in the same geographical market but in other industries. The choice among these various options will depend on the facts and circumstances of the case, and in particular on the significance of the expected effects of comparability defects on the reliability of the analysis.
TPG2022 Chapter III paragraph 3.38
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By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter III: Comparability Analysis | Tag: Broadening the search, Comparability analysis, Comparability defects, Comparable uncontrolled price method (CUP), External comparables, Lack of comparables, Most reliable data
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- TPG2022 Chapter III paragraph 3.39A transactional profit split method might in appropriate circumstances be considered without comparable data, e.g. where the absence of comparable data is due to the presence of unique and valuable intangibles contributed by each party to the transaction (see paragraph 2.119). However, even in cases where comparable data are scarce...
- TPG2022 Chapter III paragraph 3.37The transactional focus of transfer pricing methods and the question of a possible aggregation of the taxpayer’s controlled transactions are discussed at paragraphs 3.9-3.12. A different question is whether non- transactional third party data can provide reliable comparables for a taxpayer’s controlled transactions (or set of transactions aggregated consistently with...
- TPG2022 Chapter III paragraph 3.36Tax administrators may have information available to them from examinations of other taxpayers or from other sources of information that may not be disclosed to the taxpayer. However, it would be unfair to apply a transfer pricing method on the basis of such data unless the tax administration was able,...
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- TPG2022 Chapter III paragraph 3.34There are also proprietary databases that are developed and maintained by some advisory firms. In addition to the issues raised above for commercial databases that are more broadly commercialised, proprietary databases also raise a further concern with respect to their coverage of data if they are based on a more...
- TPG2022 Chapter III paragraph 3.33Use of commercial databases should not encourage quantity over quality. In practice, performing a comparability analysis using a commercial database alone may give rise to concerns about the reliability of the analysis, given the quality of the information relevant to assessing comparability that is typically obtainable from a database. To...
- TPG2022 Chapter III paragraph 3.32It may be unnecessary to use a commercial database if reliable information is available from other sources, e.g. internal comparables. Where they are used, commercial databases should be used in an objective manner and genuine attempts should be made to use the databases to identify reliable comparable information....
- TPG2022 Chapter III paragraph 3.31A number of limitations to commercial databases are frequently identified. Because these commercial databases rely on publicly available information, they are not available in all countries, since not all countries have the same amount of publicly available information about their companies. Moreover, where they are available, they do not include...
- TPG2022 Chapter III paragraph 3.30A common source of information is commercial databases, which have been developed by editors who compile accounts filed by companies with the relevant administrative bodies and present them in an electronic format suitable for searches and statistical analysis. They can be a practical and sometimes cost-effective way of identifying external...
- TPG2022 Chapter III paragraph 3.29There are various sources of information that can be used to identify potential external comparables. This sub-section discusses particular issues that arise with respect to commercial databases, foreign comparables and information undisclosed to taxpayers. Additionally, whenever reliable internal comparables exist, it may be unnecessary to search for external ones, see...