Page 79 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

the data is not sufficiently complete such that all material
differences have been identified. Therefore, PT is required to use
the interquartile range, because the company’s prices are within
the interquartile range, no adjustment is made.

5. Transactional Profit Split Method

The transactional profit split method attempts to eliminate the
effect on profits of special conditions made in a controlled
transaction by determining the division of profits that
independent entities would have expected to realize from
engaging in the transaction or transactions.

Procedures to Apply the Transactional Profit Split Method

1. The transactional profit split method first
identifies the profits to be split for the relat-
ed entities from the controlled transactions
in which the related entities are engaged
2. It then splits those combined profits be-
tween the related enterprises on an econom-
ically valid basis that approximates the
division of profits that would have been an-

ticipated and reflected in an agreement
made arm’s-length.
3. The determination of the combined profits
to be split and the splitting factors should:
 Be consistent with the functional
analysis of the controlled transac-

tion under review and, in particu-
lar, reflect the allocation of risks
among the parties

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