Use of More than one Transfer Pricing Method

Par Robert Robillard - 26 juin 2014

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Paragraph 2.11 of the OECD Transfer Pricing Guidelines explains:

« The arm’s length principle does not require the application of more than one method for a given transaction (or set of transactions […]), and in fact undue reliance on such an approach could create a significant burden for taxpayers. Thus, these Guidelines do not require either the tax examiner or taxpayer to perform analyses under more than one method. While in some cases the selection of a method may not be straightforward and more than one method may be initially considered, generally it will be possible to select one method that is apt to provide the best estimation of an arm’s length price. However, for difficult cases, where no one approach is conclusive, a flexible approach would allow the evidence of various methods to be used in conjunction. In such cases, an attempt should be made to reach a conclusion consistent with the arm’s length principle that is satisfactory from a practical viewpoint to all the parties involved, taking into account the facts and circumstances of the case, the mix of evidence available, and the relative reliability of the various methods under consideration. »

In Canada, paragraphs 61 and 62 of IC 87-2R International Transfer Pricing suggests:

« 61. The most appropriate method in a given set of circumstances will be the one that provides the highest degree of comparability between transactions. Once a taxpayer establishes comparability at a particular level within the hierarchy of methods, the taxpayer is not required to consider or apply a lower-ranking method. On the other hand, if the taxpayer cannot establish comparability at any level, other methods should be considered in order to determine the most appropriate method.

62. In certain cases, taxpayers may have some doubts about the reliability of the results produced by a particular method. Because the results produced by each of the recommended methods should have some consistency, taxpayers may wish to confirm their results by applying another method. »

In the United States, item (c)(2)(iii) of section 482, §1.482-1  Allocation of income and deductions among taxpayers, explains:

« Confirmation of results by another method. If two or more methods produce inconsistent results, the best method rule will be applied to select the method that provides the most reliable measure of an arm’s length result. If the best method rule does not clearly indicate which method should be selected, an additional factor that may be taken into account in selecting a method is whether any of the competing methods produce results that are consistent with the results obtained from the appropriate application of another method. Further, in evaluating different applications of the same method, the fact that a second method (or another application of the first method) produces results that are consistent with one of the competing applications may be taken into account. »

The use of more than one method may therefore depend of the facts and circumstances surrounding the transaction. However, it is not prescribed neither in Canada nor the United States.

Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard « at » localhost

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