Transfer Pricing Methods
Agenda Item 5 Working Draft
Chapter 5 Transfer Pricing Methods
[This paper is based on a paper prepared by Members of the UN Tax Committee’s Subcommittee on Practical Transfer Pricing Issues, but includes some Secretariat drafting and suggestions not yet considered by them – the Secretariat takes responsibility for any relevant errors and omissions. Formerly, Methods were dealt with in Chapters 4 and 5, which are now combined – hence the reference, on a temporary basis, to Parts 5A and 5B of this paper].
[Table of Contents to be added]
Chapter 5A‐ Traditional Methods 1. Introduction
This part of the Chapter describes several transfer pricing methods that can be used to determine an arm’s length price and it describes how to apply these methods in practice. In general, the OECD Transfer Pricing Guidelines are followed, with emphasis on practicality solutions when using and applying transfer pricing methods. In response to practical difficulties that may exist in applying the OECD TP Guidelines, for example when no access to databases with relevant information on comparables are readily available, some requirements for applying the arm’s length standard are softened or more flexibly applied, [and some deviations/departures are suggested from the OECD TP Guidelines in this Chapter. These deviations/ departures from the OECD TP Guidelines may assist with allowing governments
and taxpayers in UN Member Countries to gain experience with the application of transfer pricing methods while seeking ways to get more conformity with the OECD TP Guidelines. ] 1.1 Use of methods
In order to calculate or test the arm’s length nature of prices or profits, use is made of transfer pricing methods or methodologies. Transfer pricing methods are ways of calculating the profit margin of transactions or an entire enterprise or of calculating a
Chapter 5 Transfer Pricing Methods
[This paper is based on a paper prepared by Members of the UN Tax Committee’s Subcommittee on Practical Transfer Pricing Issues, but includes some Secretariat drafting and suggestions not yet considered by them – the Secretariat takes responsibility for any relevant errors and omissions. Formerly, Methods were dealt with in Chapters 4 and 5, which are now combined – hence the reference, on a temporary basis, to Parts 5A and 5B of this paper].
[Table of Contents to be added]
Chapter 5A‐ Traditional Methods 1. Introduction
This part of the Chapter describes several transfer pricing methods that can be used to determine an arm’s length price and it describes how to apply these methods in practice. In general, the OECD Transfer Pricing Guidelines are followed, with emphasis on practicality solutions when using and applying transfer pricing methods. In response to practical difficulties that may exist in applying the OECD TP Guidelines, for example when no access to databases with relevant information on comparables are readily available, some requirements for applying the arm’s length standard are softened or more flexibly applied, [and some deviations/departures are suggested from the OECD TP Guidelines in this Chapter. These deviations/ departures from the OECD TP Guidelines may assist with allowing governments
and taxpayers in UN Member Countries to gain experience with the application of transfer pricing methods while seeking ways to get more conformity with the OECD TP Guidelines. ] 1.1 Use of methods
In order to calculate or test the arm’s length nature of prices or profits, use is made of transfer pricing methods or methodologies. Transfer pricing methods are ways of calculating the profit margin of transactions or an entire enterprise or of calculating a