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Transfer pricing


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.

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