The EdgarStat Blog explores issues in transfer pricing and application of the transactional net margin method (TNMM or CPM in the US) and other enterprise profit-based methods.
There are often legitimate concerns with using book value versus market value of assets in applying a Return on Assets approach in transfer pricing. While employing a Return on Costs approach may be a reliable alternative, it must also account for comparability differences in asset intensity.
Topics: Return on Assets Contract Manufacturer Financial Economics Benchmarking Asset Intensity Adjustment CAPMRead more
To determine whether the usual financial ratios provide insights into what would represent an arm's length range, any analysis of controlled healthcare distributors must account for the underlying facts surrounding the functions and expenses occurred by the distribution affiliate.
Topics: Pharmaceutical Industry Benchmarking Resale Price Method TNMM/CPM Tax ControversyRead more
Applied properly, the Comparable Profits Method (CPM) can be a useful approach for well-defined transfer pricing issues, such as the appropriate profitability of a sales affiliate. Unfortunately, CPM is often applied mechanically without regard for economic principles and functional comparability.
Topics: Benchmarking Profit Indicators Tax Policy State Transfer Pricing TNMM/CPMRead more
The Israel Tax Authority is questioning whether costs plus markup models Israeli R&D affiliates are at arm's length. This could present issues for multinationals that have not been giving proper consideration to cost base, asset intensity and ownership of valuable intangibles in their benchmarking.
Topics: DEMPE Base Erosion and Profit Shifting (BEPS) Benchmarking Intangibles Tax PolicyRead more