Transactional net margin method (OECD TP Guideline)
The transactional net margin method examines the net profit relative to an appropriate base (e.g. costs, sales, assets) that a taxpayer realises from a controlled transaction (or transactions that are appropriate to aggregate. Thus, a transactional net margin method operates in a manner similar to the cost plus and resale price methods. This similarity means that in order to be applied reliably, the
transactional net margin method must be applied in a manner consistent with the manner in which the resale price or cost plus method is applied.
This means in particular that the net profit indicator of the taxpayer from the controlled transaction (or transactions that are appropriate to aggregate) should ideally be established by reference to the net profit indicator that the same taxpayer earns in
comparable uncontrolled transactions, i.e. by reference to “internal comparables”.
Where this is not possible, the net margin that would have been earned in comparable transactions by an independent enterprise (“external comparables”) may serve as a guide. A functional analysis of the controlled and uncontrolled transactions is required to determine whether the transactions are comparable and what adjustments may be necessary to obtain reliable results. Further, the other requirements for comparability must be applied.