Page 67 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

is unlikely to provide a reliable measure of arm’s-length result
and is not the best method because these differences.

2. Resale Price Method

The resale price method begins with the price at which a product
that has been purchased from a related enterprise is resold to an
independent enterprise. This resale price is then reduced by an
appropriate gross margin on this price (the resale price margin)
representing the amount out of which the reseller would seek to
cover its selling and other operating expenses and, in light of the
functions performed, taking into account assets used and risks
assumed, make an appropriate profit.

What is left after subtracting the gross margin, after adjustments
for other costs associated with the purchase of the product (i.e.
customs duties), as the arm’s-length price for the transfer of
property between related entities.

The resale price method may be most appropriate where the
entity in question is performing the role of distributor.

Features of the Resale Price Method

The following six features apply to the resale price method:

1. The resale price is the price from the dis-
tributor (reseller) to the customer. The trans-
fer price is the price to the customer less the
applicable gross margin earned by the re-
seller.
2. The applicable gross margin is equal to the
gross profit margin realized in comparable

uncontrolled transactions less the appropri-
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