Controled vs uncontrolled transaction
Controlled: Transaction between two or more enterprises that are ‘associated enterprises’ with respect to each other
Uncontrolled: transaction between two or more enterprises that are NOT ‘associated enterprises’ with respect to each other
Enterprises are associated if…
- ENTERPRISE participates directly or indirectly in the management, control or capital of another enterprise or,
- the SAME PERSON participate directly or indirectly in the management, control or capital of two enterprises
- person or enterprise needs to have ‘control’
Align transfer pricing structure with business model by…
- Establishing adequate level of segmentation for transaction
- Conduct value chain analysis for each of the identified transactions
- those two also basis for applying arm length principle
What is the allocation of the arm length principle based on
On a comparison of conditions in a controlled transaction with conditions that would have been made by
- independent parties
- under comparable circumstances
- for comparable transaction
- Identify commercial relation between associated enterprise, conditions&economically relevant circumstances attached to those controlled transaction
- To do so must understand the industry sector in which group operates , factors affecting performance of any business operating in this sector
Possible Analysis to define industry effects on the TP
Porter’s 5 Forces
Value chain analysis ( porter or Baumgartner 2018)
Understand
- acquisition plans
- pricing structures
Examples of transactions that cna nit be analyzed ob transaction-to-transaction basis
- Long terms contracts for the supply of commodities or services
- Right to use intangible property
- Pricing of closely linked products when impractical to determine pricing for each individual transaction/product
- Portfolio approach ex. Business strategy of bonding certain transactions for appropriate return on total portfolio and not on single products
Aggregating transactions
-used for comparability analysis
-No need to compile segmented or adjusted P&L accounting
—> assessment if aggregating transactions is feasible can pay out
