Page 59 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

Business strategies also include market penetration schemes. An
entity seeking to penetrate a market or to increase its market
share might temporarily charge a price for its product or service
that is lower that the price charged for otherwise comparable
products or services, as long as it is for a reasonable time and not
permanently.

3. Arm’s – Length Range

The transfer pricing principles require that:

1. The arm’s-length range be determined
2. The comparability analysis take place and,
3. The best method be used

In some cases it will be possible to apply arm’s length principles
to arrive at a single figure (price or margin) that is the most
reliable to establish whether the conditions of a transaction are
arm’s-length. However, because transfer pricing is not an exact
science, there will also be many occasions when the application
of the most appropriate method or methods produces a range of
figures all of which are relatively equally reliable. In these cases,
differences in the amounts that compromise the range may be
caused by the fact that in general the application of the arm’s-
length principle only produces an approximation of conditions
that would have been established between independent
enterprises.

Consequently, if a range of prices result from applying the best
method or methods, the OECD principles require that:

1. If the price agreed between the parties fall
within the range, the agreed price will be
considered the market price.

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