College week 1 - 2 – Business and transfer pricing models
Introduction – The basis of transfer pricing
Transfer pricing basics: art. 9 OESO arm’s length
Als art. 9 van toepassing is, als je dus direct of indirecte controle hebt over het management,
apply the same terms and conditions as we would hypothesise between unrelated parties;
versimpeld
Transfer pricing methods:
Methoden gebruikt om een vergelijking te maken
Traditional transaction methods:
- CUP
- CPM
- RPM
Transactional profit methods:
- TNMM; meest gebruikt vanwege de beschikbaarheid van data
- Profit split
‘Least complex’ entity
- Performs routine functions
- Incurs limited risks
- Owns no valuable assets such as intangibles
Routine return; TNMM method, look at independent companies in the market, a
typical independent company would have a return of 5. Even if the concern is very
successful or had a very bad year, this company will always have a return of 5
independent of how good/bad the profits are that year
Entrepreneur or principal
- Performs value adding functions
- Incurs entrepreneurial risks
- Owns valuable assets (intangibles)
Residual profit/loss; you have a centralized company in NL, you do procurement,
manufacturing, R&D etc. and in BE you buy the products intercompany from NL and sell
them to 1 customer in BE; the BE company is a least complex entity. The rest of the
profits should be in NL. The entrepreneur of principal gets the most profit in good years
but also incurs most risk and thus incurs more of the losses in bad years.
Centralized models: separate entities for buying, selling etc. you expect profit to be where
the principal is located in a good year
Decentralized models: all entities perform all activities, you expect profits to be spread
Introduction – The basis of transfer pricing
Transfer pricing basics: art. 9 OESO arm’s length
Als art. 9 van toepassing is, als je dus direct of indirecte controle hebt over het management,
apply the same terms and conditions as we would hypothesise between unrelated parties;
versimpeld
Transfer pricing methods:
Methoden gebruikt om een vergelijking te maken
Traditional transaction methods:
- CUP
- CPM
- RPM
Transactional profit methods:
- TNMM; meest gebruikt vanwege de beschikbaarheid van data
- Profit split
‘Least complex’ entity
- Performs routine functions
- Incurs limited risks
- Owns no valuable assets such as intangibles
Routine return; TNMM method, look at independent companies in the market, a
typical independent company would have a return of 5. Even if the concern is very
successful or had a very bad year, this company will always have a return of 5
independent of how good/bad the profits are that year
Entrepreneur or principal
- Performs value adding functions
- Incurs entrepreneurial risks
- Owns valuable assets (intangibles)
Residual profit/loss; you have a centralized company in NL, you do procurement,
manufacturing, R&D etc. and in BE you buy the products intercompany from NL and sell
them to 1 customer in BE; the BE company is a least complex entity. The rest of the
profits should be in NL. The entrepreneur of principal gets the most profit in good years
but also incurs most risk and thus incurs more of the losses in bad years.
Centralized models: separate entities for buying, selling etc. you expect profit to be where
the principal is located in a good year
Decentralized models: all entities perform all activities, you expect profits to be spread
