On May 23, 2017, the OECD released a draft of Action 8 of the Base Erosion and Profit Shifting (BEPS) plan, providing taxpayers and tax administrations with a new transfer pricing approach to measure hard-to-value-intangibles (HTVI):
Transfer pricing industry practice traditionally employs descriptive ratio analysis under 26 CFR 1.482-5(b)(4)(ii) within the Comparable Profits Method (CPM) to determine an arm’s length range.
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.
From Equation Counting to Class Conflict: A Mathematical Reading of Political Economy
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…
Analysts often work with ratios. Whether examining price-to-earnings ratios in finance or profit indicators in transfer pricing, the ratio m(i) = Y(i) / X(i) is often reported. However, this simple ratio masks a systematic bias that affects quartile estimates and other location parameters.
Controlling producer price inflation (PPI) doesn’t require austerity.
Using a less reliable (higher variance) adjusted profit indicator violates the scientific principle of minimizing measurement error. Avoiding error propagation is essential for producing credible and reproducible estimates.
The profit rate identity can be estimated as a dynamic framework using an autoregressive distributed lag (ARDL) model.
Some basic rules of differential calculus are useful for understanding economic discourse, such as discussions in business or financial media about U.S. economic performance.