Operating Profit Indicators Using Robust Regression

Posted by Ednaldo Silva

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:

Reliable Profit Indicators Using Regression Analysis

Posted by Ednaldo Silva

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.

Rate of Return on Capital Employed is Misconceived

Posted by Ednaldo Silva

U.S. transfer pricing regulations about the “rate of return on capital employed” (ROA) are misconceived because they rely on untested assumptions. For example, 26 CFR 1.482-5(b)(4)(ii), states: