Methods & methodology
CUP, resale price, cost plus, TNMM, and profit split — and the best method analysis that decides which one your position actually rests on
Method selection is where a transfer pricing position is won or lost before a single comparable is screened. Choose the method by habit and even a well-built benchmark ends up defending the wrong thing. Choose it by comparing the alternatives on the facts, and the rest of the analysis has something solid to stand on.
This cluster covers transfer pricing methods in working detail — what the best method rule actually requires, when the CUP method beats everything else, why the gross-margin methods are so fragile, how profit splits are really built, and how the choice of tested party shapes the result. Written for practitioners and for the in-house tax teams who pay them.
How to choose a transfer pricing method you can defend.
Most method selection sections announce a conclusion rather than reach one. This is a mistake. What the best method rule actually requires, how each of the five methods earns or loses its place on the facts, and the six signs a selection won’t survive review.
Read the full article →In this article
- The default problem
- What the best method rule actually requires
- The delineated transaction: what are you pricing?
- The traditional methods: CUP, resale price, cost plus
- The profit methods: TNMM and profit split
- Reliability: comparability, or convenience?
- Alternatives: considered, or never raised?
- Six signs a method selection won’t survive review
Five pieces, each on one part of the work.
The pillar above is the comprehensive starting point. The articles below go deeper on individual elements — the CUP method, the gross-margin methods, profit splits, cost-based methods for services, and the choice of tested party.
The CUP method: why the most reliable method is the least used
Where a comparable uncontrolled price exists, nothing is more direct. Internal versus external CUPs, commodity quotations, the adjustments that make or break comparability, and why so few studies look.
Resale price and cost plus: the gross-margin methods and the accounting problem
Both methods are sound in principle and fragile in practice, because gross margins depend on how costs are classified. Where they still work, and how to tell before you commit to one.
Profit split in practice: contributions, residuals, and choosing the keys
The method built for unique contributions and integrated operations. How contribution and residual analyses differ, how to select and defend allocation keys, and what the revised OECD guidance changed.
Cost-based methods for services: the services cost method, low-value services, and the mark-up
Not every intra-group service needs a benchmark. When cost or a modest mark-up is acceptable, which jurisdictions accept it, and where the simplified routes stop applying.
The tested party: why the entity you test matters as much as the method
The least complex party, reliable comparables, and no unique contributions. How to choose the tested party, the common errors in choosing it, and how the wrong choice quietly defeats the right method.