Page 61 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

Transfer Pricing Valuation Methods

The transfer pricing principles dictate that the entity can select a
transfer pricing method only if all three standards are met for
the method being selected:

1. The best method rule applies

2. The comparability analysis applies
3. The arm’s-length range applies

The arm’s-length principle requires that prices for goods and
services exchanged by related parties should be the same as if
the parties were independent acting in the same or similar
circumstances. According to the OECD Guidelines, the arm’s-
length character of the tested transaction must be determined in
accordance with the transfer pricing method deemed the most
reliable for the transaction under review. Under the OECD
arm’s-length standards the following are the generally accepted
transfer pricing methods:

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