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

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: tax controversy Tutorial Profit Indicators Return on Assets

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

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: tax controversy Comparability Limited Risk Distributor Profit Indicators

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: TNMM/CPM Asset Intensity Adjustment Profit Indicators Tutorial

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: TNMM/CPM Profit Indicators Tutorial

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

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: TNMM/CPM Pharmaceutical Industry Tax Policy Base Erosion and Profit Shifting (BEPS)

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: TNMM/CPM Comparability Limited Risk Distributor Profit Indicators