Page 82 - Strategic Tax Planning for Global Commerce & Investment

Tax Benefits for U.S. Exporters

this pool of profit based on an analysis of any factors relevant to
the related entities that would indicate how independent parties
might have split the difference between the seller’s minimum
price and the buyer’s maximum price.

How to Split the Combined Profits

The relevance of comparable uncontrolled transactions or
internal data and the criteria used to achieve an arm’s length
division of the profits depend on the facts and circumstances of
the situation. Thus, the criteria or allocation keys used to split
the profit should

1. B e reasonably independent of transfer pric-
ing policy formulation (i.e. they should be
based on objective data such as sales to in-
dependent parties) and not on data relating
to the remuneration of controlled transac-

tions (i.e. sales to related entities), and
2. Be supported by comparable data, internal
data or both.

Allocation Keys

In practice, the division of combined profits under the
transactional profit split method is generally achieved using one
or more allocation keys. Depending on the facts and
circumstances of the transaction under review, the allocation key
can be a figure (i.e. a 30% - 70% split based on evidence of a
similar split achieved between independent parties in
comparable transactions), or a variable (i.e. relative value of
participant’s marketing expenditure or other possible keys such
as asset-based allocation keys or cost-based allocation keys).
Where more than one allocation keys is used, it will be necessary
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