COST ACCOUNTING
TRANSFER PRICING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The contract does not need to be a reference in the analysis.
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When the contract is in line with the behavior of the parties, the contract can be used as a reference in the analysis.
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Contracts are not always the starting point in transfer pricing analysis.
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A contract can show the intention of the parties in a transaction so it should always be used as the main reference in the analysis.
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Detailed explanation-1: -These are attributes of the transactions or parties that could materially affect prices or profits, including the characteristics of the property or services; functional analysis; contractual terms; economic circumstances and business strategies pursued.
Detailed explanation-2: -Tax code Section 482 and the Organization for Economic Cooperation and Development (OECD) transfer pricing guidelines provide guidance to conduct comparability analyses and describe five comparability factors.
Detailed explanation-3: -In addition to the contextual information on the industry and the overall business of the taxpayer, this analysis is typically structured around the five comparability factors: the characteristics of the property or service; contractual terms; functional analysis; economic circumstances and business strategies.
Detailed explanation-4: -An example would be two comparable distributors of consumer goods of the same industry segment, where the goods distributed may not be exactly the same, but the functional analyzes of the two distributors would be comparable.