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.

Medtronic Litigation: Unspecified Methods vs. Traditional Methods
September 02, 2022 by Harold McClure

This discussion presents a simplified illustration of the issues with respect to the unspecified method applied in Medtronic III in contrast to the IRS' extreme CPM approach and a traditional RPSM approach based on sound financial economics.

Topics: US Transfer Pricing Residual Profit Split Method TNMM/CPM Unspecified Method US Internal Revenue Service Tax Controversy Tax Policy Medtronic Section 482 Intangibles

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Super Royalties in Transfer Pricing: Going Beyond "Economics 101"
May 24, 2022 by Harold McClure

Use of the CPM/TNMM to determine royalty rates for valuable intangibles in transfer pricing is incompatible with basic financial economics.

Topics: DEMPE OECD Guidelines TNMM/CPM US Internal Revenue Service Tax Policy Royalty Rates Intangibles

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

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

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

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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: TNMM/CPM Tax Controversy Tax Policy State Transfer Pricing

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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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