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.

Tutorial: Estimating Implied Credit Rating Using Altman Z"-Score Tool
November 05, 2021 by John Hollas

In this tutorial we introduce you to a tool in the EdgarStat CUFT Loan Agreements Database for estimating the implied credit rating of your tested borrower using the Altman Z”-Score Model.

Topics: Credit Rating CUFT Intercompany Financing

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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 Resale Price Method tax controversy Benchmarking TNMM/CPM

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Tutorial: Benchmarking with the CUFT Loan Agreements Database in EdgarStat
September 28, 2021 by John Hollas

Intercompany financing is a growing area of focus in transfer pricing. CUFT Analytics co-founder and managing director John Hollas provides guidance on using the EdgarStat CUFT Loan Agreements Database to benchmark an arm's length range of interest rates.

Topics: CUFT Intercompany Financing Arm's Length Interest Rates Credit Risk

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Benchmarking Intercompany Loans: Market Conditions Matter
September 08, 2021 by Harold McClure

Interests fluctuate based on market conditions, and analysts must consider whether the market conditions surrounding their data are comparable to those of the tested intercompany transaction when benchmarking an arm's length interest rate in transfer pricing.

Topics: Interest Rates CUFT Intercompany Financing

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Tutorial: Asset Adjustment to ROA is Unviable
August 17, 2021 by Ednaldo Silva

Dr. Ednaldo Silva illustrates why asset intensity adjustments to the Return on Assets profit indicator are redundant and unviable.

Topics: Return on Assets Profit Indicators Asset Intensity Adjustment

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Mechanical Applications of the Comparable Profits Method are Unreliable
July 15, 2021 by Harold McClure

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: Profit Indicators Benchmarking TNMM/CPM State Transfer Pricing Tax Policy

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

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Intercompany Financing: Engie State Aid Case and Perrigo’s Battle with the IRS
May 31, 2021 by Harold McClure

Harold McClure explores intercompany financing issues through the lens of a recent case before the EU General Court and an upcoming battle between Perrigo and the IRS.

Topics: Interest Rates Intercompany Financing United States Europe

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Challenges to Intercompany Loan Rates by French Tax Authority and IRS
May 07, 2021 by Harold McClure

International tax law firms are rightfully warning clients of audit risks with respect to intercompany financing in France. Taxpayers can mitigate risk by following new OECD guidance, providing sound economic analysis and avoiding overly aggressive positions on group vs. standalone credit ratings.

Topics: Interest Rates Intercompany Financing France United States

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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: Profit Indicators Mining and Extractives Canadian Revenue Agency tax controversy TNMM/CPM

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Transfer Pricing Issues for Israeli R&D Centers
March 24, 2021 by Harold McClure

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: Intangibles DEMPE Base Erosion and Profit Shifting (BEPS) Benchmarking Tax Policy

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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: Return on Assets Profit Indicators Tutorial tax controversy

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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 controversy TNMM/CPM State Transfer Pricing Tax Policy

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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: Profit Indicators Comparability Limited Risk Distributor tax controversy

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Tutorial: Using Regression Analysis to Adjust Profit Indicators
February 19, 2021 by Ednaldo Silva

Ad hoc adjustments are a risky endeavor in transfer pricing. Using regression analysis, we can test if asset intensity is relevant to explain the behavior of the operating profit markup or profit margin and calculate a reliable adjustment to the profit indicator.

Topics: Profit Indicators Tutorial TNMM/CPM Asset Intensity Adjustment

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Tutorial: Using Regression Analysis in TNMM Transfer Pricing
February 16, 2021 by Ednaldo Silva

The prevalent use of quartiles to determine profit indicators often results in a wide (unreliable range) and ad hoc assets adjustments. These problems can be solved by using regression analysis, which produces more defensible statistical ranges of the profit indicator resistant to audit scrutiny.

Topics: Profit Indicators Tutorial TNMM/CPM

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Comparability Issues in Benchmarking Hi-Tech Distribution Affiliates
February 10, 2021 by Harold McClure

Following its neighbor Australia, New Zealand has issued a large assessment to Oracle related to its distribution affiliate. We explore potential comparability and BEPS issues that could play a role in the dispute.

Topics: Profit Indicators Comparability Base Erosion and Profit Shifting (BEPS) TNMM/CPM

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Transfer Pricing Aspects of Taxing the Pharmaceutical Sector
January 26, 2021 by Harold McClure

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) TNMM/CPM Tax Policy

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Comparability Issues Are a Slippery Slope in Transfer Pricing
December 15, 2020 by Harold McClure

Comparability is a key issue in transfer pricing that is often not fully appreciated. However, comparability issues are hardly uncommon in transfer pricing controversies and can create a trickle-down effect that leads to major taxation issues.

Topics: Profit Indicators Comparability Limited Risk Distributor TNMM/CPM

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