Introduction This article shows that the reported profit level indicator OMAD used in transfer pricing is always lower when intangible-producing expenses such as R&D are expensed rather than capitalized and the firm is growing over time while adopting a constant…
Introduction This article shows that reported profit level indicators (PLIs) used in transfer pricing are distorted when intangible-producing expenses such as R&D are expensed rather than capitalized. For margin-based PLIs the distortion falls on the numerator alone; for asset-based PLIs…
Introduction In certain cases, the data generation process for operating profit (Y) given Net Sales (X) for a company is given by the following equation: This could be the case, for example, when the data is rightly skewed. In this…
1. Preliminaries The geometric distributed-lag specification for revenue is with Rt revenue, Xt advertising expense, α the intercept (base revenue), γ the impact multiplier, λ the carryover rate, and ut a stochastic disturbance. Two assumptions deserve naming before any algebra.…
Swanson-Baumol Prior Theoretical Work The Swanson-Baumol 2005 work is a seminal paper in antitrust and patent law. Swanson and Baumol argue that once a technology is adopted into a standard, the patent holder gains immense market power. This is not…
Introduction Extending algebraic developments from Ednaldo Silva, I formalize a truncation of the perpetual‑inventory method (PIM) equation with explicit and tractable error bounds. This treatment of finite‑sample PIM truncation does not appear in standard asset‑valuation cookbooks. Framework Consider the case…
In this part of the article, I follow closely the exposition of the valuation formulas in the Financial Theory and Corporate Policy textbook by Copeland, Weston and Shastri.
Interest stripping is a tax technique where a company uses high-interest, intercompany debt to shift profits from high-tax jurisdictions to low-tax jurisdictions, by creating significant deductible expenses for the borrowing entity of the MNE.
Introduction When applying the Comparable Profits Methods (CPM), Return on Assets (ROA) is often used as a Profit Level Indicator (PLI) to establish, in principle, the arm’s length price for a related party transaction. In general, this PLI is given…