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Choice of TP methods and adjustments
When a company chooses the "Comparable Uncontrolled Price Method: CUP", or "Resale Price Method: RP" or
"Cost Plus Method: CP", which are so called three basic methods, adjustments have to be made between
the comparable transactions and the target transactions. Adjustments are for example, kinds of
inventories or services, transaction volume, market difference, condition of settlement, functions
difference, accounting policy differences. However, since these information are undisclosed, it is
difficult to pick up the comparable transactions practically. Therefore, it is difficult to make
adjustments with high reliability. Considering this situation, as these three basic methods cannot
be applied, it is common to apply the "Transactional Net Margin Method: TNMM" or "Residual Profit
Split Method: RPSM". At the field of TP tax audits, the TNMM or RPSM are generally accepted. Under
this situation, many companies prepare the TP documentation based on the TNMM.
"Cost Plus Method: CP", which are so called three basic methods, adjustments have to be made between
the comparable transactions and the target transactions. Adjustments are for example, kinds of
inventories or services, transaction volume, market difference, condition of settlement, functions
difference, accounting policy differences. However, since these information are undisclosed, it is
difficult to pick up the comparable transactions practically. Therefore, it is difficult to make
adjustments with high reliability. Considering this situation, as these three basic methods cannot
be applied, it is common to apply the "Transactional Net Margin Method: TNMM" or "Residual Profit
Split Method: RPSM". At the field of TP tax audits, the TNMM or RPSM are generally accepted. Under
this situation, many companies prepare the TP documentation based on the TNMM.