Transfer Pricing Is Everywhere: And TP Confusion Can Be Everywhere, Too (The disarmament caused by the Cost-Plus Method)

Transfer pricing is complex and confusing, but one source of consistent confusion is befuddling.? From Big Firm Old-Timers to TP Tyros, practitioners often confuse application of the cost plus method with application of the comparable profits method.??

Shame on us.??

The cost plus method and comparable profits method are different methods designed to be applied in different circumstances. When we confuse them, we remove an arrow from our transfer pricing quiver.? How can we prevent it?? Quick read below.

Application of the cost plus method references gross profit markup realized in comparable uncontrolled transactions – which is ostensibly similar to the application of the comparable profits method referencing “cost plus” observations from comparable uncontrolled taxpayers.? But the methods are not the same. One word makes the difference.??

The cost plus method references comparable uncontrolled transactions.

The comparable profits method references comparable uncontrolled taxpayers.

If your analysis is benchmarking cost plus observations from comparable taxpayers – apply the comparable profits method.? If your analysis is benchmarking cost plus observations from comparable transactions – apply the cost plus method.

Doing so will help keep your quiver full. If you feel like transfer pricing methods have not been applied well for you or your company, and you would like to experience transfer pricing with a full quiver, contact us at GKC Solutions.? We would be happy to hunt with you.