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: 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: Profit Indicators tax controversy Tutorial Return on Assets

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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: TNMM/CPM Profit Indicators Asset Intensity Adjustment Tutorial

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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: TNMM/CPM Profit Indicators Tutorial

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