In column A list the four principal methods that you used in establishing or reviewing the appropriate arm's length pricing or consideration in your related-party international dealings that are revenue in nature, and for which you have included amounts at items 2a to 2d. Related-party dealings of a capital nature are addressed in item 6.
Not all the methods are generally considered to provide an arm's length outcome, but may be arm's length in some cases.
If you did not use any methods, leave item 5 blank. If you used fewer than four, list only those used.
Record the four methods at H to N in descending order of total dollar value, using the appropriate code from the following table:
Pricing method |
Code |
Comparable uncontrolled price (CUP) method |
1 |
Resale price method |
2 |
Cost-plus method |
3 |
Profit split method |
4 |
Transactional net margin method |
5 |
Marginal costing |
6 |
Cost-contribution arrangement |
7 |
Apportionment of costs |
8 |
Apportionment of income |
9 |
Fixed mark-up applied to cost |
10 |
Fixed percentage of resale price |
11 |
Other methods |
12 |
The above methods are explained in detail in Taxation Ruling TR 97/20 and Taxation Ruling TR 1999/1 Income tax: international transfer pricing for intra-group services, and it is strongly recommended that taxpayers with related-party dealings read these rulings before completing item 5. The rulings generally accept the principles in the OECD report Transfer pricing guidelines for multinational enterprises and tax administrations - 1995. However, any differences are clearly indicated.
A brief summary of each of the methods in the above table is provided in appendix 4. The list is not intended to be exhaustive, nor will each method be acceptable under all circumstances.
As in item 4, in order to establish appropriate arm's length pricing under a particular method, a sampling of the dealings may be sufficient if carried out according to accepted statistical practice. Note that where total dollar value of related-party dealings is to be calculated, these dealings should not be 'netted off' other than in the case of certain derivative instruments (see Item 2d Other for further details). That is, do not set off incomings and outgoings against each other to result in a lesser amount. Instead, add the amounts, both income derived and expenses incurred, to obtain the sum total of all such dealings.