There are five basic methods for establishing transfer prices :
1. The Comparable Uncontrolled Price, or CUP, Method
The CUP Method compares the price of goods or services in an intercompany transaction to the price changed between independent parties.
2. Cost-Plus-Percent Method
The markup should be equal to what a third party would earn for transactions in a comparable situation, including similar risks and market conditions.
3. The Resale Price Method looks at the gross margin, or the difference between the price at which a product or service is purchased and the price at which it is sold to a third party.
4. Transaction Net Margin Method, or TNMM,
TNMM instead compares net profit margin earned in a controlled intercompany transaction to the net profit margin earned by a similar transaction with a third party.
5. The Profit-Split Method,
Transfer pricing is determined by assessing how the profit arising from a particular transaction would have been divided between the independent businesses involved in the transaction.