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Chapter INTM484090

Document Cited in Related
Vincent
Published date09 April 2016
Record NumberINTM484090

A usual feature of transfer pricing reports is the inclusion of a range of results that companies put forward as comparables, presented as the arm’s length range into which the company fits. Further analysis may be of a statistical nature, concentrating on the interquartile range of these results (see INTM485120) and in cases where the actual results of the tested party are within this interquartile range, the report will typically conclude that the transfer pricing must be arm’s length.

Considering a range of results is appropriate because, however strict the comparability requirements, companies will have differing margins, finance costs, volume, markets, attitude to risk-taking and so on. Gathering evidence for an arm’s length price is considered in detail at INTM485000 onwards, but the point to be made in relation to transfer pricing reports is that even rigorous selection is likely to produce a range of possible arm’s length answers. This can be reduced by careful analysis, adjustment, and filtering out of inappropriate or anomalous companies. This should narrow the range to a more realistic and useable sample. A wide range may of course include the tested party, but if it would also include thousands of other companies in a variety of industries, it isn’t of much help.

The OECD lists a number of factors of comparability starting at 1.38 of the Transfer Pricing Guidelines, but recognises that a range of results is appropriate and that if the results of the tested party are within this range then it is reasonable to conclude that its results are arm’s length. However, while the OECD recognises that use of statistical tools such as the inter-quartile range might help to...

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