REVIEW OF COMPARABILITY AND OF PROFIT METHODS

Transcription

1 REVIEW OF COMPARABILITY AND OF PROFIT S DETERMINAZIONE DEL METODO PIÙ APPROPRIATO ALLE CIRCOSTANZE DEL CASO 31/01/2011

2 GUIDELINES 31/01/2011 2

3 ARM S LENGHT PRINCIPLE ARM S LENGTH PRINCIPLE (ART.9 OECD MODEL TAX CONVENTION) [WHERE] CONDITIONS ARE MADE OR IMPOSED BETWEEN THE TWO [ASSOCIATED] ENTERPRISES IN THEIR COMMERCIAL OR FINANCIAL RELATIONS WHICH DIFFER FROM THOSE WHICH WOULD BE MADE BETWEEN INDEPENDENT ENTERPRISES, THEN ANY PROFITS WHICH WOULD, BUT FOR THOSE CONDITIONS, HAVE ACCRUED TO ONE OF THE ENTERPRISES, BUT, BY REASON OF THOSE CONDITIONS, HAVE NOT SO ACCRUED, MAY BE INCLUDED IN THE PROFITS OF THAT ENTERPRISE AND TAXED ACCORDINGLY 31/01/2011 3

4 SIGNIFICANCE AND MEANING OF COMPARED WITH OTHER OPTIONS REALISTICALLY AVAILABLE TO THEM POTENTIAL TRANSACTION NO ALTERNATIVE IS CLEARLY MORE ATTRACTIVE TAKING INTO ACCOUNT ANY ECONOMICALLY RELEVANT DIFFERENCES THAT WOULD SIGNIFICANTLY AFFECT THEIR VALUE 31/01/2011 4

5 SIGNIFICANCE AND MEANING OF PROPERTY OR SERVICE TRANSFERRRED CONTRACTUAL TERMS BUSINESS STRATEGIES PURSUED BY THE PARTIES COMPARABILITY FACTORS FUNCTIONS PERFORMED BY THE PARTIES (ASSET USED AND RISKS ASSUMED) ECONOMIC CIRCUMSTANCES OF THE PARTIES 31/01/2011 5

6 CHARACTERISTICS OF PROPERTY OR SERVICES PROPERTY OR SERVICE TRANSFERRRED DEPENDING ON THE TRANSFER PRICING EVALUATION TO THIS FACTOR CAN BE GIVEN 31/01/2011 6

7 CHARACTERISTICS OF PROPERTY OR SERVICES PROPERTY OR SERVICE TRANSFERRRED TRADITIONAL TRANSACTION UNCONTROLLED PRICE RESALE PRICE AND COST PLUS TRANSACTIONAL PROFIT S 31/01/2011 7

8 FUNCTIONAL ANALYSIS FUNCTIONS PERFORMED BY THE PARTIES (ASSET USED AND RISKS ASSUMED) COMPENSATION USUALLY WILL REFLECT THE FUNCTIONS THAT EACH ENTERPRISE PERFORMS IN DETERMING WHETHER CONTROLLED AND UNCONTROLLED TRANSACTIONS OR ENTITIES ARE A FUNCTIONAL ANALYSIS IS NECESSARY 31/01/2011 8

9 CONTRACTUAL TERMS CONTRACTUAL TERMS INDIPENDENT ENTERPRISES ASSOCIATED ENTERPRISES DEFINE EXPLICITLY OR IMPLICITY RESPONSABILITIES, RISKS AND BENEFITS CONTRACTS CORRESPONDENCE, COMMUNICATIONS CONDUCT AND ECONOMIC PRINCIPLES CONTRACTUAL TERMS OF POTENTIALLY UNCONTROLLED TRANSACTIONS MAY BE EITHER LIMITED OR UNAVAILABLE 31/01/2011 9

10 ECONOMIC CIRCUMSTANCES ECONOMIC CIRCUMSTANCES OF THE PARTIES THERE ARE DIFFERENT ECONOMIC CIRCUSTANCES THAT AFFECT MARKETS CONDITIONS SUBSTITUTE GOODS / SERVICES LEVEL OF SUPPLY / DEMAND CONSUMER PURCHASING POWER BUSINESS CYCLE ECONOMIC CYCLE PRODUCT CYCLE CYCLES MARKET SIZE INTERNAL COMPETITION GEOGRAPHIC LOCATION INTERNAL REGULATION MULTIPLE COUNTRY vs SINGLE COUNTRY APPROACH LOCAL COSTS DISTRIBUTION CHANNEL 31/01/

11 BUSINESS STRATEGIES BUSINESS STRATEGIES PURSUED BY THE PARTIES BUSINESS STRATEGIES MAY NEED TO BE TAKEN INTO ACCOUNT WHEN DETERMINING THE COMPARABILITY OF CONTROLLED AND UNCONTROLLED TRANSACTIONS AND ENTERPRISES MARKET PENETRATION SCHEMES EXPANSION OF MARKET SHARE BUSINESS STRATEGY THAT TEMPORARILY DECREASED PROFITS IN RETURN FOR HIGHER LONG- RUN PROFITS SEVERAL FACTORS SHOULD BE CONSIDERED TO DETERMINE IF IT IS CONSISTENT WITH THE PURPORTED BUSINESS STRATEGY 31/01/

12 TRANSFER PRICING S 31/01/

13 TRADITIONAL TRANSACTION S UNCONTROLLED PRICE PRICES IN A CONTROLLED TRANSACTION PRICES IN A UNCONTROLLED TRANSACTION OPEN MARKET INTERNAL EXTERNAL RESALE PRICE RESALE PRICE PURCHASE PRICE (GROSS MARGIN) FROM AN ASSOCIATED RESALE PRICE PURCHASE PRICE (GROSS MARGIN) UNCONTROLLED ADJUSTEMENT INTERNAL EXTERNAL 31/01/

14 TRADITIONAL TRANSACTION S COST PLUS COSTS INCURRED + COST PLUS MARK UP CONTROLLED COSTS INCURRED + COST PLUS MARK UP UNCONTROLLED INTERNAL EXTERNAL 31/01/

15 TRADITIONAL PROFIT S TRANSACTIONAL NET MARGIN NET PROFIT TO AN APPROPRATE BASE (E.G. COSTS, SALES, ASSETS) CONTROLLED NET PROFIT TO AN APPROPRATE BASE (E.G. COSTS, SALES, ASSETS) UNCONTROLLED INTERNAL EXTERNAL TRANSACTIONAL PROFIT SPLIT DIVISION OF PROFITS BETWEEN ENTERPRISES IN A CONTROLLED TRANSACTION DIVISION OF PROFITS BETWEEN ENTERPRISES IN A CONTROLLED TRANSACTION SPLITTING 31/01/

16 SELECTION OF THE TRANSFER PRICING 31/01/

17 SELECTION OF THE TRANSFER PRICING RESPECTIVE STRENGTHS AND WEAKNESSES OF THE OECD RECOGNISED S THE DEGREE OF COMPARABILITY BETWEEN CONTROLLED AND UNCONTROLLED TRANSACTIONS, INCLUDING THE RELIABILITY OF COMPARABILITY ADJUSTMENTS THAT MAY BE NEEDED TO ELIMINATE MATERIAL DIFFERENCES BETWEEN THEM THE SELECTION OF A TRANSFER PRICING ALWAYS AIMS AT FINDING THE MOST APPROPRIATE FOR A PARTICULAR CASE APPROPRIATENESS OF THE THROUGH FUNCTIONAL ANALYSIS THE AVAILABILITY OF RELIABLE INFORMATION (IN PARTICULAR ON UNCONTROLLED S) NEEDED TO APPLY THE SELECTED AND/OR OTHER S 31/01/

18 SELECTION OF THE TRANSFER PRICING TRADITIONAL TRANSACTION S TRANSACTIONAL PROFIT S OTHER S 31/01/

19 SELECTION OF THE TRANSFER PRICING II I V III IV 31/01/

20 SELECTION OF THE TRANSFER PRICING UNCONTROLLED PRICE RESALE PRICE COST PLUS TRANSACTIONAL NET MARGIN TRANSACTIONAL PROFIT SPLIT Kind of industry The CUP method is a particularly reliable method where an independent enterprise sells the same product as is sold between two associated enterprises. Commodities. Incoterms. Volumes Distributors. Warranty, no warranty Manufacturers (Contract Manufacturer), Research, Services Case by Case 31/01/