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.

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