Page 83 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

to weight the allocation keys used to determine the relative
contribution that each allocation key represents to the earnings
of the combined profits.

In practice, allocation keys based on assets/capital (operating
assets, fixed assets, intangible assets, capital employed) or costs
(relative spending and /or investment in key areas such as
research and development, engineering, marketing) are often
used.

I. Asset-based allocation keys or capital-based

allocation keys can be used where there is a
strong correlation between tangible or in-
tangible assets or capital employed and cre-
ation of value in the context of the
controlled transaction.
II. Cost-based allocation key based on expenses

may be appropriate where it is possible to
identify a strong correlation between rela-
tive expenses incurred and relative value
added.

Conclusion

The guidelines permit and, even encourage, the use of in-house
comparable in ascertaining the resale price method and the cost
plus method. As a result, most enterprises will be able to use
either of these two methods in complying with the best method
requirements. The comparable uncontrolled price method can be
used in limited situations, such as the transfer of products or
services with strong similar characteristics (i.e. extracted raw
materials, harvested crops or animal products, as explained
above in Section 1). The comparable transactional net margin
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