Page 77 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

indicator for a comparable uncontrolled
transaction.
2. When this is not possible, the net profit

margin could be obtained from a compara-
ble transaction by an independent entity (ex-
ternal comparable).
3. The transactional net margin method is not
reliable if each party to the transaction
makes valuable and unique contributions.

4. It could be used as indicators for the net profit margin, re-
turn on assets, income from operations relative to sales
or, any other measure related to net profits

Comparability Analysis and the TNMM

This method compares the profits of the entity under review
with the net profit indicator of independent entities in
comparable circumstances. The valuation of the transactional net
margin method relies on external market indicators. The TNMM
requires an analysis of the facts and circumstances and various
aspects of the entity operation, including:

1. The type of business
2. The products and services
3. The assets utilized
4. The size and extent of the operations

Differences and Adjustments

The quality of the data and assumptions are a factor in the
reliability of this method and two requirements are applicable:

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