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OECD released discussion draft on transactional profit methods — Orbitax Tax News & Alerts

On 25 January 2008, the OECD issued a public discussion draft on the transactional profit methods. The discussion draft is a result of an initiative of OECD's Working Party 6, and it is based on the experience acquired by countries applying transactional profit methods since the adoption of the Transfer Pricing Guidelines in 1995 and on comments received from the business community in response to the 2006 invitation.

InFebruary, the OECD released an invitation to comment on issues in relation to profit methods and attracted many detailed responses from the public.

The issues addressed in this discussion draft are as follows:

-   Status of transactional profit methods as last resort methods.
-   Use of more than one method (use of a transactional profit method in conjunction with a traditional transaction method, or sanity check).
-   Access to the information needed to apply or review the application of a transactional profit method.
-   Application of transactional profit methods and unique contributions.
-   Application of the transactional net margin method: standard of comparability.
-   Application of the transactional net margin method: selection and determination of the net profit margin indicator.
-   Application of a transactional profit split method: determining the combined profit to be split.
-   Transactional profit split method: reliability of a residual analysis and a contribution analysis.
-   Application of a transactional profit split method: how to split the combined profit.
-   Other methods