Blog

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. Blog writings reflect the position of the authors and are not the opinion of EdgarStat.

Transfer Pricing for Manufacturing Affiliates in the Czech Republic
September 05, 2023 by Harold McClure

Determining arm's length remuneration for a Czech manufacturing affiliate under different transfer pricing models.

Topics: Return on Assets Contract Manufacturer Royalty Rates Tax Controversy TNMM/CPM

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ATO Prevails in Challenging the Procurement Transfer Pricing for Ampol
April 17, 2023 by Harold McClure

On February 20, 2023 Ampol Limited settled its procurement hub transfer pricing dispute with the Australian Tax Office (ATO). Procurement affiliates have been a point of emphasis for the ATO in recent years, and have been gaining the attention of other tax authorities, including the US IRS.

Topics: Australia Australian Tax Office Singapore Procurement Hub Tax Controversy TNMM/CPM

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McDonald's France Intercompany Royalty: CUT v. CPM on Steroids
March 22, 2023 by Harold McClure

A 2008 restructuring transferred the European rights to the McDonald’s intangibles to McD Europe Franchising Sàrl, a Luxembourg-resident subsidiary with branches in both Switzerland and the U.S. While this migration of intangible assets created substantial controversy in Europe, the real transfer pricing concern would be an IRS issue and not an issue for the French Tax Authority (FTA) if the royalty rate remained at 5%.

Topics: Intangibles Europe Best Method Royalty Rates Tax Controversy TNMM/CPM

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Valuation of Software: CA Software Israel Ltd
January 20, 2023 by Harold McClure

The Israel Tax Authority prevailed in Israel vs CA Software Israel Ltd (October 2022, Tel Aviv District Court, Case No 61226-06-17), which involved the valuation of transferred software. While the taxpayer’s experts tried to justify the lower valuation arguing that the economic useful life of the transferred intangibles was very short.

Topics: Discounted Cash Flow Intangibles Valuation of Intangibles Tax Controversy

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Intercompany Royalties: Does the Realistic Alternatives Principle Endorse CPM?
September 27, 2022 by Harold McClure

Licensees bear significant commercial risk when they use valuable intangible assets owned by another entity. As such, any method that affords them with an expected return to its tangible assets that is only as high as the overall enterprise’s cost of capital is inconsistent with sound economics.

Topics: Intangibles Medtronic Royalty Rates Tax Controversy Section 482 US Transfer Pricing TNMM/CPM

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Medtronic Litigation: Unspecified Methods vs. Traditional Methods
September 02, 2022 by Harold McClure

This discussion presents a simplified illustration of the issues with respect to the unspecified method applied in Medtronic III in contrast to the IRS' extreme CPM approach and a traditional RPSM approach based on sound financial economics.

Topics: Residual Profit Split Method Unspecified Method US Internal Revenue Service Intangibles Tax Policy Medtronic Tax Controversy Section 482 US Transfer Pricing TNMM/CPM

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Tutorial: Power Functions in Transfer Pricing
February 18, 2022 by Ednaldo Silva

Regression analysis yields more reliable profit indicators than the linear equation without intercept specified in US and OECD transfer pricing guidelines.

Topics: Tax Controversy Transfer Pricing Profit Indicators

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RPM vs. TNMM: Benchmarking a LATAM Pharmaceutical Distributor
October 20, 2021 by Harold McClure

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 Tax Controversy TNMM/CPM

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Brazil's Alignment with OECD Transfer Pricing Guidelines: The Marcopolo Case
June 23, 2021 by Harold McClure

Brazil’s unique transfer pricing rules have allowed multinationals to shift income to tax havens in certain situations. We explore through the lens of the Macopolo case how Brazil could benefit from adoption of the arm's length standard.

Topics: Base Erosion and Profit Shifting (BEPS) Brazil OECD Guidelines Tax Policy Tax Controversy TNMM/CPM

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Cameco v. The Queen: Prologue and Round II Preview
May 03, 2021 by Harold McClure

In February 2021, the Supreme Court of Canada declined to hear the Canadian Revenue Agency's (CRA) appeal in its case against uranium multinational Cameco Corporation. However, this only marked the end of Round 1, as the courts only ruled on 8 of 14 years under review.

Topics: Mining and Extractives Canadian Revenue Agency Tax Controversy TNMM/CPM Profit Indicators

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Tutorial: Reliability of Return on Assets as a Profit Indicator
March 09, 2021 by Ednaldo Silva

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 Tax Controversy Profit Indicators

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States Should Learn from Transfer Pricing History, but Focus on The Right Lessons
March 04, 2021 by Harold McClure

A recent article asserted that state tax authorities should use the Comparable Profits Method (CPM) with care in the evaluation of transfer pricing for tangible goods. However, some of the examples cited, including the recent Coca Cola case, in their piece are misplaced for reasons we will address.

Topics: Tax Policy State Transfer Pricing Tax Controversy TNMM/CPM

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Misapplication of the Resale Price Method: LATAM Petroleum Distributor
February 24, 2021 by Harold McClure

Selecting alleged comparable companies with different functions than the tested party is known to open Pandora's Box in transfer pricing controversy, and is often exacerbated by a failure to adjust for material differences between the tested party and the selected comparables.

Topics: Comparability Limited Risk Distributor Tax Controversy Profit Indicators

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