Fundamentals
Transfer Pricing Methods Overview
Transfer pricing methods are the analytical approaches used to test whether intercompany transactions are priced at arm's length. The OECD recognises five core methods: comparable uncontrolled price, resale price, cost plus, transactional net margin method and profit split, each suited to different transaction types and data.
Selecting the right method depends on the nature of the transaction, the availability of reliable comparable data, and the functions, assets and risks of each party involved. The comparable uncontrolled price method compares the controlled price directly to an independent transaction, while cost-based methods build in an.
The transactional net margin method, one of the most widely used approaches in practice, compares net profit margins earned on controlled transactions to those earned by independent companies performing similar functions. Profit split methods, by contrast, are reserved for highly integrated transactions where both parties.
In practice
What matters when applying transfer pricing methods overview
- Five OECD-recognised methods cover most transaction types
- Comparable uncontrolled price method suits transactions with close market comparables
- Cost plus and resale price methods rely on gross margins
- TNMM is the most commonly applied method in practice
- Profit split fits highly integrated, intangible-driven transactions
Frequently asked
Common questions
Which transfer pricing method is most common?+
The transactional net margin method (TNMM) is the most widely used in practice because it relies on more readily available financial data and net profit indicators, making it applicable to a broad range of routine transactions such as distribution and contract manufacturing arrangements.
Can a group use more than one method?+
Yes, groups often apply different methods to different types of intercompany transactions within the same structure. For example, a company might use CUP for commodity sales while applying TNMM to test the profitability of its distribution or service entities separately.
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.