Are you concerned about transfer pricing issues in your related party transactions?
Don't let the complexity of this topic overwhelm you.
In my previous article, I talked about What It Transfer Pricing and Why It Matters to Multinational Companies?
In this article, I will break down the most commonly used transfer pricing methods!
1. Comparable Uncontrolled Price (CUP) Method:- the CUP method involves comparing the price and terms of a transaction between related parties with that of an uncontrolled transaction between independent parties. The comparison is only valid if the transactions are identical or very similar.
2. Resale Price Method:- This method uses the resale price of a product or service to determine the arm’s length price. The resale price is reduced by a gross margin determined from similar but unrelated transactions. Then, costs associated with purchasing the product are subtracted from the total.
3. Cost-Plus Method:- This method determines the arm’s length price by adding the supplier's costs and markup to the product or service. It is often used when semi-finished goods are transacted between related entities or when related parties have long-term arrangements.
4. Transactional Net Margin Method (TNMM):- TNMM compares the net profit margin of a transaction between related parties with that of similar transactions between unrelated entities.
5. Profit Split Method: - The profit split method is used when related parties engage in complex, interdependent transactions. The profits from such transactions are split between the parties, based on the terms that unrelated parties would have agreed upon.
The choice of method depends on the circumstances of each case.
However, the goal is to determine a fair price for the transaction, and these methods help achieve that.
In conclusion, transfer pricing methods play a critical role in ensuring that related parties transact at arm’s length.
➡️To discuss about the issues that you are facing, you can connect with me by clicking on this link. https://bit.ly/3GJcEhW
Source: https://www.linkedin.com/pulse/5-innovative-transfer-pricing-methods-multinational-ca-manish-gupta/
