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.
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: US Transfer Pricing Residual Profit Split Method Unspecified Method US Internal Revenue Service Intangibles Tax Policy Medtronic Section 482 TNMM/CPM Tax ControversyRead more
Use of the CPM/TNMM to determine royalty rates for valuable intangibles in transfer pricing is incompatible with basic financial economics.
Topics: DEMPE Royalty Rates OECD Guidelines US Internal Revenue Service Intangibles Tax Policy TNMM/CPMRead 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
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 TNMM/CPM Tax ControversyRead 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
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 TNMM/CPM Tax ControversyRead more
Changes to tax laws are often seen as the primary solution to curb profit shifting. However, proper application of the arm's length principle alongside BEPS CbCR disclosures already offer powerful tools in this endeavor.
Topics: Pharmaceutical Industry Base Erosion and Profit Shifting (BEPS) Tax Policy TNMM/CPMRead more