COST ACCOUNTING
TRANSFER PRICING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Contractual terms, business strategy
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Functions, assets and risks (FAR) of each party
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Product characteristics, state of the economy
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competitor identification
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Detailed explanation-1: -Comparability analysis is an essential step in any transfer pricing analysis in order to gain a correct understanding of the economically significant characteristics of the controlled transaction and of the respective roles of the parties to the controlled transaction.
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: -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.
Detailed explanation-4: -Comparability adjustments are intended to eliminate the effects of differences that may exist between situations being compared and that which could materially affect the condition being examined in the methodology (e.g. price or margin).