A Guide to Performing Transfer Pricing Benchmarking Analysis
Conducting a benchmark study or comparability analysis is critical for entities while applying the arm’s length principle, to determine the appropriate transfer price (TP). The application of ALP is based on a scientific and statistical comparison of conditions present in a controlled transaction of a business (i.e. “tested party”) with conditions that can be identified and applied in independent enterprises (i.e. “comparable”)that undertake similar transactions, under similar circumstances.
A benchmarking study is used to evaluate the arm’s length range of price, that would enable an acceptable comparison of the price of the controlled transaction, vis-à-vis such a range. The study helps in choosing an appropriate TP method and arrive at an arm’s length price (ALP) or profit level indicator (PLI).
Transfer pricing consultants in Dubai can help you with conducting the statutory TP benchmark study. Read the below blog for further information on TP benchmark study:
What is a TP benchmarking study?
Multinational Enterprises (MNEs) and their associate enterprises (AEs) use a TP benchmarking analysis or TP study to test the arm’s length nature of the related party transactions. Transfer pricing consultants in Dubai can provide companies with reliable TP benchmark services.
Conducting a TP benchmarking study can help the businesses in the following ways:
- Prepare a TP documentation file
- Decide the mark-up attached w.r.t the transactions carried out between related parties
- Determine the arm’s length range to provide an estimate of the ALP.
What is the purpose of TP benchmarking?
The key purpose of a TP benchmarking study is to determine the general circumstances and conditions w.r.t the comparable transactions of third parties in a given market. Conducting a TP benchmarking study helps us to elicit a range of values, such as the arm’s length range or the mark-up range, along with the associated factors embedded in the said comparable transaction(s).
How to perform a TP benchmarking study?
A TP benchmarking study inter alia, involves the examination of two key terms: the controlled transaction under review and the uncontrolled transaction that is potentially to be used for comparison purposes. Transfer pricing consultants in Dubai can help you with the examination of these key aspects.
Typically, the following key steps are involved in conducting a TP benchmarking study:
- Determine the years to be covered
- Conduct a broad-based analysis of the taxpayer’s circumstances
- Review the controlled transaction(s) under examination
- Review the existing internal comparable(s) (if available)
- Determine the available sources of information w.r.t external comparable(s), where such external comparable(s) are required, considering their relative reliability
- Select the most appropriate TP method which would be applicable
- Identify the potential comparable(s)
- Determine and make comparability adjustments, wherever appropriate
- Interpret and use the data collected
- Determine the ALP/Range
Hire Tax Gian for TP Benchmarking Services in the UAE
Tax Gian, a brand of Jitendra Tax Consultants (JTC), is a leading name when it comes to TP benchmarking services in the UAE. MNEs and AEs often need the expert assistance of tax experts like Tax Gian, as TP benchmarking involves complex tasks and exercises, such as collecting data of comparable transactions, analysing market conditions and selecting appropriate comparable(s), to assess the appropriateness of the client’s TP methods.
Tax Gian and its associate firm – Jitendra Chartered Accountants (JCA) have been serving their clients in the UAE for over two decades. Associating with a highly experienced firm like Tax Gian, which provides specialized and professional TP services in the UAE, can help you navigate the complex corporate tax landscape of UAE, with ease and confidence.
