RoyaltyStat Blog

The CPM/TNMM is a Multiplier Theory

Posted by Ednaldo Silva

To grasp the legalese of my initial encounters with the 1968 US transfer pricing regulations (under section 482 published in the Federal Register (33 FR 5848), April 16, 1968), I translated the three specified transfer pricing methods (CUP, resale price and cost plus) into algebra and found a multiplier formula tying them together.

I created a two equation system including an accounting equation and a stochastic equation, and obtained the reduced-form equation to estimate the price (CUP) or the selected gross profit indicator. Using the same multiplier procedure, I developed the CPM/TNMM in 1989.

The Berry Ratio is Illegitimate Under the TNMM

Posted by Ednaldo Silva

Le secret d’ennuyer est celui de tout dire. Voltaire (1694-1778)

The Berry ratio is vulnerable to the flexible accounting allocation of costs and expenses among the tested party and its comparables.

Adecco Intercompany Royalty Litigation: CUP v. TNMM

Posted by Harold McClure

Swiss multinational employment service provider Adecco recently prevailed in a case brought by the Danish tax authority (Skattestyrelsen or SKAT) challenging the 2% sales royalty paid by Adecco affiliate in Denmark for the use of various intangible assets, including trademarks and know-how.

The arguments put forth by the taxpayer and SKAT represented the classic tension between market versus profits-based approaches to evaluating arm’s length royalties. The 3-2 split decision and SKAT’s less-than-comprehensive analysis in its argument also may have left room for the possibility that a more robust analysis could have led to a different result.