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 CAPM

Dr. Ednaldo Silva illustrates why asset intensity adjustments to the Return on Assets profit indicator are redundant and unviable.

Topics: Return on Assets Asset Intensity Adjustment Profit Indicators

Notwithstanding its acceptance in Coca Cola Co. v. Commissioner of the IRS, Return on Assets is a controversial profit indicator to use in transfer pricing. At the very least it must be subject to economic analysis to corroborate a relationship between operating profit and operating assets.

Topics: Tutorial Return on Assets Profit Indicators Tax Controversy