We can assist by reviewing the tax risk, both in the past, future and presence, so that the management can be aware of such and makes necessary preparation for any challenges from the tax authority.。
On this, our firm is pleased to collaborate with an alumni of the Japan National Taxation Bureau who specialises in transfer pricing.
Generally speaking, where the companies are similar to each other, the gross profit generated by these companies should not differ considerably. However, since prices are determined freely by each and every company, and if at the end, the profit differs considerably from its competitors, it may draw unwanted attention from the tax authority. Here, transfer pricing methodology comes in place as a support tool.
Traditionally, Comparable Uncontrolled Price (CUP) method, Resale Price (RP) method and Cost Plus (CP) method were used. However, the hypothesis factors assumed by these methods are impractical in real world. That brings us to the remaining 2 methods, namely the Transactional Net Margin Method (TNMM) and Profit Split (PS) method. Among these 2 methods, TNMM is widely used by practitioners.
TNMM involved comparing the profit outcome of the transactions with related companies to what would be achieved by an unrelated party in similar circumstances Profit comparisons from TNMM at the net margin level are a broader application of the RP and CP methods. The difference is that the TNMM examines the net profit margin, rather than the gross profit margin relative to an appropriate base, eg sales or assets.
The degree of comparability required under the TNMM is lower than that required for the other methods, since a comparison at this level takes into account broader commercial and economic influences. A net profit analysis also provides greater flexibility as potential functional differences affecting gross margins may be compensated at the net operating profit level. Additionally, the information required to conduct a TNMM is more readily available than public information required to carry out other methods.
A range of data sources exist with which to apply the TNMM. In searching for comparable companies, database published by Bureau Van Dijk is used. This database contains financial and descriptive information on public companies globally. With it, the companies can use it as a benchmark to set it prices such as it is viewed to be arm-length’s and commercially justifiable.
We offer competitive prices than the four big audit firms for the above services. Please feel free to contact us on the above.