Page 69 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

parability analysis under the resale price
method.
3. Under the resale method the characteristics

of the product or physical similarity is not
an important factor.
4. Adjustments for differences between con-
trolled and uncontrolled transactions should
be made when material differences would
affect gross margin.

Comparability Analysis

A reseller’s gross profit provides compensation to the reseller for
the performance of resale function. Compensation includes an
operating profit in return for the initial capital investment and
the assumptions of risks.

The five factors must be considered to determine this
compensation. Comparability under the resale price method is
particular dependent on the similarity of functions performed,
contractual terms, economic conditions and business strategies
with characteristics of the product or service not being as
important.

As with the CUP method, gross margins may be set by reference
to the resale price margin the same seller earns on items sold to
third parties under similar conditions (internal comparisons) or
by reference to publicly available data on the margins earned by
independent enterprises on unrelated sales (external
comparisons).

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