Transfer Pricing Terms Deck Flashcards
Transfer Pricing The pricing of goods
services
Arm’s Length Principle The standard that transfer prices should be the same as if the transactions were between unrelated parties.
Comparable Uncontrolled Price (CUP) Method A transfer pricing method that compares the price charged in a controlled transaction to the price charged in a comparable uncontrolled transaction.
Resale Price Method (RPM) A transfer pricing method that determines the transfer price based on the resale price to an independent party
minus a gross margin.
Cost Plus Method (CPM) A transfer pricing method that adds an appropriate markup to the costs incurred by the supplier of goods or services.
Transactional Net Margin Method (TNMM) A transfer pricing method that examines the net profit margin relative to an appropriate base
such as costs
Profit Split Method (PSM) A transfer pricing method that divides the combined profits from controlled transactions among the associated enterprises based on their relative contributions.
Advance Pricing Agreement (APA) An agreement between a taxpayer and tax authority on the appropriate transfer pricing methodology for future transactions.
Transfer Pricing Documentation Records and reports that a company must maintain to demonstrate that its transfer prices comply with the arm’s length principle.
Functional Analysis An analysis of the functions performed
risks assumed
Benchmarking Study A study that identifies comparable uncontrolled transactions or companies to determine an arm’s length range of prices or margins.
Interquartile Range (IQR) The range between the 25th and 75th percentiles of a set of data
often used in transfer pricing to determine an arm’s length range.
Intangible Property Non-physical assets such as patents
trademarks
Royalty A payment made for the use of intangible property
such as patents or trademarks.
Cost Sharing Agreement (CSA) An agreement between related parties to share the costs and risks of developing
producing
Transfer Pricing Adjustment An adjustment made by tax authorities to a company’s transfer prices to ensure they comply with the arm’s length principle.
Transfer Pricing Risk The risk that a company’s transfer pricing practices will be challenged by tax authorities
leading to adjustments and penalties.
Transfer Pricing Policy A company’s internal guidelines and procedures for setting and documenting transfer prices.
Transfer Pricing Audit An examination by tax authorities of a company’s transfer pricing practices and documentation.
Transfer Pricing Penalty A financial penalty imposed by tax authorities for non-compliance with transfer pricing regulations.
Transfer Pricing Dispute A disagreement between a taxpayer and tax authority over the appropriate transfer pricing methodology or adjustments.
Mutual Agreement Procedure (MAP) A process for resolving transfer pricing disputes between tax authorities of different countries.
OECD Transfer Pricing Guidelines Guidelines issued by the Organisation for Economic Co-operation and Development (OECD) for applying the arm’s length principle.
Base Erosion and Profit Shifting (BEPS) Strategies used by multinational companies to shift profits to low-tax jurisdictions
often addressed through transfer pricing regulations.
Controlled Transaction A transaction between related parties
such as divisions within a multinational company.
Uncontrolled Transaction A transaction between unrelated parties
used as a benchmark for determining arm’s length prices.
Comparable A transaction or company that is similar to the controlled transaction or company being analyzed for transfer pricing purposes.
Market Price The price at which goods or services are sold between unrelated parties in the open market.
Transfer Pricing Methodology The approach used to determine the arm’s length price for a controlled transaction.
Transfer Pricing Regulation Laws and rules governing the pricing of transactions between related parties.
Transfer Pricing Compliance The process of ensuring that a company’s transfer pricing practices adhere to applicable regulations and guidelines.
Transfer Pricing Policy A company’s internal guidelines and procedures for setting and documenting transfer prices.
