Operating profit indicators such as the operating *profit margin* (μ), defined as the quotient of operating profits to net sales revenue, can vary between enterprises in the same industry:

- Net Profit Indicator (44)
- Valuation of Intangibles (14)
- Royalty Rates (13)
- CPM/TNMM (10)
- OECD Profit Indicators (10)
- Return on Assets (8)
- Arm's Length Range (7)
- CUP Method (6)
- Tax Litigation (5)
- OECD Guidelines (4)
- Adjustment (3)
- Brazil Transfer Pricing (3)
- Economic Substance (3)
- Intercompany Financing (3)
- Net profit (3)
- OECD BEPS Action (3)
- Safe Harbors, Safe Harbours (3)
- Tax Law (3)
- US Transfer Pricing Regulations (3)
- Best Method (2)
- Comparability Analysis (2)
- Loan Interest Rates (2)
- Location Savings (2)
- OECD adjustment is spurious (2)
- Transfer Pricing Methods (2)
- Australia (1)
- Benchmark Energy Prices (1)
- Berry Ratio (1)
- CAPM (1)
- Cloud Computing Transfer Pricing (1)
- Cumulative effect of advertising on sales (1)
- IRS Releases FY 2015 Data Book (1)
- IRS Releases New Practice Unit (1)
- India (1)
- Keyword search (1)
- Limited Risk (1)
- Marketing intangibles (1)
- Text Redaction and Royalty Rates (1)
- US APMA News & Statistics (1)
- Working Capital (1)

*profit margin* (μ), defined as the quotient of operating profits to net sales revenue, can vary between enterprises in the same industry:

The U.S. transfer pricing regulations prescribe under 26 CFR 1.482-1(e)(2)(iii)(B): “The interquartile range [IQR] ordinarily provides an acceptable measure of this [arm’s length] range; however[,] a different statistical method may be applied if it provides a more reliable measure.”

The U.S. transfer pricing regulations refer to “most reliable” or “more reliable” -- which means (following the statistical principle of minimum variance) the narrowest range computed from the dataset. See Wonnacott (1969), Chapter 7-2 (Desirable properties of estimators), pp. 134-139.

*"**The true theorist in economics has to become at the same time a statistician."*

– Ragnar Frisch (1930), p. 30.

Many transfer pricing reports (against Ragnar Frisch’s advice) are devoid of economics or statistics principles. Here, I show that the usual transfer pricing application of "return on assets" (ROA) is disreputable.

Here, I show that the return on operating assets (ROA) can be specified as the return on investment (ROI).

Economic time series may have one-period autoregressive errors (AR(1)).

Before Newey-West, the Cochrane-Orcutt or the Prais-Winsten AR(1) error correction was pervasive in applied research. Estimating time-dependent economic variables, such as the individual company’s (tested party and comparables) return on operating assets, without the AR(1) error correction will result in inefficient parameter estimates, and the standard errors will be inconsistent. Hence, the unaware reader can begrime the arm’s length range of comparable return on operating assets.

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.

- Read More
**Topics:**Net Profit Indicator, CUP Method, CPM/TNMM- Share

*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.

- Read More
**Topics:**Net Profit Indicator, CPM/TNMM, Berry Ratio- Share

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.

- Read More
**Topics:**Tax Litigation, CUP Method, CPM/TNMM- Share

Content not found

Your privacy is critically important to us. RoyaltyStat applies the following principles:

- RoyaltyStat values the privacy of its clients.
- RoyaltyStat collects personal information needed to operate and improve RoyaltyStat services and to provide you with the services you request.
- RoyaltyStat does not share this information with or sell this information to any third parties, except as required by law.