Page 54 - Strategic Tax Planning for Global Commerce & Investment

Tax Benefits for U.S. Exporters

1. Best Method Rule

The entity is required to choose the best transfer pricing
method.

The theoretical arm’s-length standard looks to “the same
transaction” under the “same circumstances” by
uncontrolled entities. In reality, this degree of similarity
rarely or never exists. As a practical matter, the
determination of arm’s length may be based on
“comparable transactions” under “comparable
circumstances” when there are no identical transactions.

The stated purpose of the transfer pricing standards is to
achieve an arm’s-length result of “true taxable income”.
The arm’s length result is to be based on a method that
provides the “most reliable measure”. One and only one
of the potential transfer pricing methods is the best
method.

The two primary factors in selecting the best method are:

1. The degree of comparability between the

controlled transaction and any “uncon-
trolled comparable”.
2. The quality of the data and assumptions (i.e.
economic assumptions” that the entity uses.

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