Tax & Audit

Transfer Pricing

Analysis of intragroup transfer prices through benchmarking applications based on the different methods approved by the OECD Guidelines:

• Price Comparison Method (CUP);

• resale price method (Resale Price);

• Cost plus method (Cost Plus);

• Transactional Net Margin Method (TNMM – Transactional Net Margin Method);

• Transactional method of sharing profits (Profit Split).

The service is divided into several operational phases:

  1. Addressing a search strategy setting: the initial set or “peer group” is defined, with respect to the reference company (i.e., tested party) starting from essential data extraction criteria (market, activity classification, independence, legal form, size, consolidated financial data ); the survey is based, in this phase, on the use of commercial databases (e.g. Aida, Orbis,…).
  2. Quantitative analysis: the “peer group” is analysed with reference to a series of indices (liquidity, solidity, profitability..) to refine the comparability between the individuals identified and the tested party on the basis of economic and financial profiles;
  3. Qualitative analysis: the comparability defects are eliminated and a final set of companies is defined by means of:
    • Review of descriptions related to the activity provided by the database;
    • Viewing and in-depth information from the company’s website;
    • Balance sheet analysis, explanatory note and management report;
    • Consideration of historical chamber of commerce registrations at the Chamber of Commerce;
    • Analysis of the summary diagram of direct and indirect shareholdings, of natural and legal persons.

The benchmarking analysis provides for a minimum number of comparable companies (i.e., comparables) and a minimum number of observations for a greater significance of the statistical distribution (par. 3.38 OECD Guidelines).

4. Benchmarking analysis: the final peer-group is analysed in terms of the profit indicators of interest (net cost plus margin/operating margin/berry ratio), for each company and for each year included in the period under analysis, in order to determine the range of admissibility in accordance with the principle of free competition (Chapter III A-7 OECD Guidelines).

5. Definition of the competition range: the definition of the eligibility range is made taking into consideration any cases of positioning at the extremes of the distribution of the reference profit indicators (Chapter III A.7.3 OECD Guidelines).

For the subjects “at a loss” within the set of comparables -“peer group”, the underlying facts and circumstances are specifically analysed.

6. Drafting of a detailed report: in order to ensure maximum transparency and reproducibility of the analysis, an adequate description of all the steps of the analysis is provided, highlighting the research strategy and the comparability criteria adopted. In addition to the detailed report in text format, a summary of the work is provided in presentation format.

Example: Polytech reports.

 

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