Ensuring the needed level of transparency of comparability adjustments may depend upon the availability of an explanation of any adjustments performed, the reasons for the adjustments being considered appropriate, how they were calculated, how they changed the results for each comparable and how the adjustment improves comparability. Issues regarding documentation of comparability adjustments are discussed in Chapter V.
TPG2022 Chapter III paragraph 3.54
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Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter III: Comparability Analysis | Tag: Comparability adjustments, Comparability analysis, Consolidation requirement, Transparent systematic and verifiable
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- TPG2022 Chapter III paragraph 3.53It is not appropriate to view some comparability adjustments, such as for differences in levels of working capital, as “routine” and uncontroversial, and to view certain other adjustments, such as for country risk, as more subjective and therefore subject to additional requirements of proof and reliability. The only adjustments that...
- TPG2022 Chapter III paragraph 3.52It is not always the case that adjustments are warranted. For instance, an adjustment for differences in accounts receivable may not be particularly useful if major differences in accounting standards were also present that could not be resolved. Likewise, sophisticated adjustments are sometimes applied to create the false impression that...
- TPG2022 Chapter III paragraph 3.51It bears emphasis that comparability adjustments are only appropriate for differences that will have a material effect on the comparison. Some differences will invariably exist between the taxpayer’s controlled transactions and the third party comparables. A comparison may be appropriate despite an unadjusted difference, provided that the difference does not...
- TPG2022 Chapter III paragraph 3.50Comparability adjustments should be considered if (and only if) they are expected to increase the reliability of the results. Relevant considerations in this regard include the materiality of the difference for which an adjustment is being considered, the quality of the data subject to adjustment, the purpose of the adjustment...
- TPG2022 Chapter III paragraph 3.49An example of a working capital adjustment designed to reflect differing levels of accounts receivable, accounts payable and inventory is provided in the Annex to Chapter III. The fact that such adjustments are found in practice does not mean that they should be performed on a routine or mandatory basis....
- TPG2022 Chapter III paragraph 3.48Examples of comparability adjustments include adjustments for accounting consistency designed to eliminate differences that may arise from differing accounting practices between the controlled and uncontrolled transactions; segmentation of financial data to eliminate significant non- comparable transactions; adjustments for differences in capital, functions, assets, risks....
- TPG2022 Chapter III paragraph 3.47The need to adjust comparables and the requirement for accuracy and reliability are pointed out in these Guidelines on several occasions, both for the general application of the arm’s length principle and more specifically in the context of each method. To be comparable means that none of the differences (if...
- TPG2022 Chapter III paragraph 3.46The process followed to identify potential comparables is one of the most critical aspects of the comparability analysis and it should be transparent, systematic and verifiable. In particular, the choice of selection criteria has a significant influence on the outcome of the analysis and should reflect the most meaningful economic...
- OECD COVID-19 TPG paragraph 9The unprecedented change in the economic environment following the outbreak of COVID-19 creates unique challenges for performing comparability analysis. The pandemic may have a significant impact on the pricing of some transactions between independent enterprises and may reduce the reliance that can be placed on historical data when performing comparability...
- TPG2022 Chapter III paragraph 3.79The use of multiple year data does not necessarily imply the use of multiple year averages. Multiple year data and averages can however be used in some circumstances to improve reliability of the range. See paragraphs 3.57-3.62 for a discussion of statistical tools....
Supplemental Guidance
- Accessing Comparables Data – A Toolkit on Comparability and Mineral pricingThe Platform for Collaboration on Tax (IMF, OECD, UN and the WBG) has published a toolkit for addressing difficulties in accessing comparables Data for Transfer Pricing Analyses. The Toolkit Includes a supplementary report on addressing the information gaps on prices of Minerals Sold in an intermediate form. ...