This is the second video of the module on transfer pricing.
I'm happy to see you have made up your mind to become transfer pricing expert.
And therefore, to address the question of applying the arm's length principle.
standard adopted to deal with the issue of intra-group transactions.
So, what does the arm's length principle mean?
That is the question that will be addressed in this video.
accrued, may be included in the profits of the enterprise and taxed accordingly.
independent parties would have entered into under comparable circumstances.
principles for the application of the arm's length principle.
from the sale of goods and provision of services to business restructuring.
Comparability is the core of the application of the arm's length principle.
But how can we ascertain whether one transaction is comparable to another?
This means that in many cases, a competitor cannot represent a comparable.
there are no differences liable to affect economic conditions.
two transactions can be comparable only if reliable adjustments can be made.
in the intra-group transaction and a third party.
to independent distributor under comparable circumstances.
none of which is part of the inttra-group transaction under review.
the listing price of such a commodity represents an external comparable.
five main comparability factors that has to be taken into account.
economic circumstances and business strategies.
and upon the transfer pricing method adopted.
The characteristics of the product have an impact on prices.
far more expensive than the same bed made of standard leather.
a transaction also impact the profit allocation.
And as a consequence, the prices at which the transactions take place.
a distributor that has the right to sell back unsold products to the manufacturer.
Also contractual terms have an input on prices.
Economic circumstances are also extremely relevant.
where the regulations significantly impact the value chain.
A further factor that may affect comparability is business strategies.
otherwise compatible product in the same market.
is the essence of the arm's length principle.
In the next video we will start examining the way in which transfer pricing is set.
I will address the application of the so-called traditional methods.