You Should Pick A Method Là Gì, The Five Transfer Pricing Methods Explained

Are you looking into the five transfer pricing methods, and wish to see examples of each ?Below, we explain the common methods which you can use to determine transfer prices. We also explain for every method when, and how you should use it. Bạn đang xem : You should pick a method là gì

After reading this article you’ll have a better understanding of the different methods and how they can be applied to your firm’s transactions.

Bạn đang xem: You should pick a method là gì

You Should Pick A Method Là Gì, The Five Transfer Pricing Methods Explained

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As of October 2019, this article has been read more than 100.000 times !Before we continue, it is important to understand that the main purpose of transfer pricing methods is to examine the “ arm’s – length ” nature of “ controlled transactions. ” If these terms do not ring a bell, we advise you to first read our article What is transfer pricing ?

What Transfer Pricing Methods Are There?

The good thing about transfer pricing is that the principles and practices are quite similar all around the world. The OECD Transfer Pricing Guidelines ( OECD Guidelines ) provide 5 common transfer pricing methods that are accepted by nearly all tax authorities .The five transfer pricing methods are divided in “ traditional transaction methods ” and “ transactional profit methods. ”

Traditional Transaction Methods

Traditional transaction methods measure terms and conditions of actual transactions between independent enterprises and compares these with those of a controlled transaction .This comparison can be made on the basis of direct measures such as the price of a transaction but also on the basis of indirect measures such as gross margins realized on a particular transactions .

Transactional Profit Methods

The transactional profit methods don’t measure the terms and conditions of actual transactions. In fact, these methods measure the net operating profits realized from controlled transactions and compare that profit level to the profit level realized by independent enterprises that are engaged in comparable transactions .

The transactional profit methods are less precise than the traditional transaction methods, but much more often applied. The reason is that application of the traditional transaction methods, which is preferred, requires detailed information and in practice this information is not easy to find.

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In short:

The Five Transfer Pricing Methods

As mentioned, the OECD Guidelines discuss five transfer pricing methods that may be used to examine the arm’s – length nature of controlled transactions. Three of these methods are traditional transaction methods, while the remaining two are transactional profit methods .We list the methods here, and provide a handy graph we created :

Traditional transaction methods:

CUP methodResale price methodCost plus methodCUP methodResale price methodCost plus method

Transactional profit methods:

Transactional net margin method (TNMM)Transactional profit split method.Transactional net margin method ( TNMM ) Transactional profit split method .

In the above example, we see two comparable joint ventures. Joint Venture I is owned by associated enterprises Y and X. Opposite to that, Joint Venture II is owned by independent enterprises A and B.Let’s say that we need to determine the transfer prices to be charged for the transactions related to Joint Venture I. For that, we can compare the terms and conditions of the controlled transactions by determining the division of profits of comparable uncontrolled transactions. In this example, this means that we can compare Profit Split I with Profit Split II .

In the article the The Profit Split Method Example we look at the details of this transfer pricing method, provide a calculation example and indicate when this method should be used.

The Five Transfer Pricing Methods With Examples – Conclusion

Transfer pricing methods are quite similar all around the world. The OECD Guidelines provide five transfer pricing methods that are accepted by nearly all tax authorities. These include 3 traditional transaction methods and 2 transactional profit methods.

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In practice, the TNMM is the most used of all five transfer pricing methods, followed by the CUP method and Profit Split method. Cost Plus Method and Resale Margin Method are barely used.