Basics

Question 1

Controled vs uncontrolled transaction

Answer 1

Controlled: Transaction between two or more enterprises that are ‘associated enterprises’ with respect to each other

Uncontrolled: transaction between two or more enterprises that are NOT ‘associated enterprises’ with respect to each other

Question 2

Enterprises are associated if…

Answer 2

1. ENTERPRISE participates directly or indirectly in the management, control or capital of another enterprise or,
2. the SAME PERSON participate directly or indirectly in the management, control or capital of two enterprises
   - person or enterprise needs to have ‘control’

Question 3

Align transfer pricing structure with business model by…

Answer 3

1. Establishing adequate level of segmentation for transaction
2. Conduct value chain analysis for each of the identified transactions
   - those two also basis for applying arm length principle

Question 4

What is the allocation of the arm length principle based on

Answer 4

On a comparison of conditions in a controlled transaction with conditions that would have been made by

• independent parties
• under comparable circumstances
• for comparable transaction

1. Identify commercial relation between associated enterprise, conditions&economically relevant circumstances attached to those controlled transaction
2. To do so must understand the industry sector in which group operates , factors affecting performance of any business operating in this sector

Question 5

Possible Analysis to define industry effects on the TP

Answer 5

Porter’s 5 Forces
Value chain analysis ( porter or Baumgartner 2018)

Understand

• acquisition plans
• pricing structures

Question 6

Examples of transactions that cna nit be analyzed ob transaction-to-transaction basis

Answer 6

• Long terms contracts for the supply of commodities or services
• Right to use intangible property
• Pricing of closely linked products when impractical to determine pricing for each individual transaction/product
• Portfolio approach ex. Business strategy of bonding certain transactions for appropriate return on total portfolio and not on single products

Question 7

Aggregating transactions

Answer 7

-used for comparability analysis
-No need to compile segmented or adjusted P&L accounting
—> assessment if aggregating transactions is feasible can pay out