Methods & benchmarking
Resale Price Method
The resale price method determines an arm's length price by starting with the price at which a product bought from a related party is resold to an independent customer, then subtracting an appropriate gross margin. It applies mainly to distributors that resell finished goods without substantial alteration to them.
The resale price margin should reflect the functions performed by the distributor, the risks it assumes such as inventory and credit risk, and is typically benchmarked against gross margins earned by comparable independent distributors. This method is relevant where the distributor adds relatively limited value before resale.
Reliability depends on consistent accounting classification between the tested party and comparables, since gross margin comparisons are sensitive to how costs are categorised. The method is less suitable where the distributor performs substantial value-adding functions or owns valuable marketing intangibles.
In practice
What matters when applying resale price method
- Works backwards from the resale price
- Best suited to low-risk distribution functions
- Focuses on gross margin comparability
- Sensitive to cost classification differences
- Less suitable for value-adding distributors
Frequently asked
Common questions
Which businesses commonly use the resale price method?+
The resale price method is most commonly used for marketing and distribution entities that purchase finished goods from related manufacturers and resell them to unrelated customers with limited additional processing. It suits situations where the distributor's main contribution is sales and logistics rather than product development, branding, or significant marketing investment that would otherwise justify a larger share of overall group profit.
What limits the reliability of this method?+
Reliability is limited when distributors perform valuable functions such as building local brand recognition, bear significant market or inventory risk, or when accounting practices differ between the tested party and the comparable companies used for benchmarking. In such cases gross margins are not truly comparable, and a profit-based method such as the transactional net margin method often provides a more robust result.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.