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.
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
Read moreUse 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
Read moreApplied 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
Read moreBrazil’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
Read moreThe 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
Read moreA 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
Read moreChanges 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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