Answer to Question #160148 in Management for Prabhdeep

Question #160148

Explain the suitability of different methods of transfer pricing? (please give at least 5 points for suitability for each method)

Expert's answer

The Comparable Uncontrolled Price Method-It compares the price charged for services or property removed in a measured transaction to the price indicted for services or property transferred in a comparable unrestrained deal in comparable situations. 

The Resale Price Method- This is used to define whether a transaction reproduces the arm’s length principle. The method is suitable to use if the CUP method is not applicable. 

The Cost Plus Method- It stresses the connected industrial company as the tested party in the transfer pricing analysis. The method is used in the case of services rendered.

The Profit Split Method-is naturally applied when both sides of the controlled transaction donate the significant imperceptible property. The profit is to be shared such as is predictable in a joint venture association.

Transactional Net Margin Method- This is used to control the net profit of a controlled deal of a related enterprise-tested party. The net profit is then associated with the net profit grasped by comparable uncontrolled transactions of self-governing enterprises.

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