Page 70 - Strategic Tax Planning for Global Commerce & Investment

Tax Benefits for U.S. Exporters

The reliability of profit measures that are based on gross profit
may be adversely affected by factors that have less effect on
prices, such as:

1. Cost structures reflected, for example, in the
age of the plant or equipment
2. Business experience, such as whether the
business is in a start-up phase or is mature
3. Management efficiency, for example, by ex-
panding or contracting sales or executive
compensation over time.

Differences and Adjustments

Adjustments should be made if there are material differences
between controlled transactions and uncontrolled transactions
that affect gross profit margin. These adjustments should be
made to the gross profit margin earned from the uncontrolled
transactions. The standards of comparability apply, so the
adjustments must be based on commercial practices, economic
principles, or statistical analysis.

Five types of adjustments may be particularly relevant to the
resale price method:

1. Inventory – Inventory levels and turnover
rate may have to be adjusted, in addition,
business and other risks may have to be ad-
justed as well as the presence of price pro-

tection programs such as buy-back
programs must be considered as part of the
analysis.

62