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The Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines provide five methodologies that are widely used and accepted by almost all tax authorities in determining transfer prices. These include three traditional transaction methods – comparable uncontrolled price (CUP) method, resale price method (RPM), and cost-plus method (CPM); and two transactional profit methods – transactional net margin method (TNMM) and profit split method (PSM).

In our last article on the fundamentals of entity characterization in transfer pricing documentation (TPD), we highlighted the concept that our knowledge of the nature of a particular business determines the entity characterization and in turn, the entity characterization influences the direction and tone of the TPD as well as setting the direction in having a meaningful comparison of the price or level of income of the entity in a controlled transaction against the price or level of return from similar independent transactions.

How much do you know about your family member, a friend, a colleague, or a significant other? Is your characterization of a person reflective of his or her real character? Does your characterization of a person affect how you deal with the person?