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PrintStarting point is the recognition that in most cases there is not one proper price, but instead there is a range within which the proper price can be found.
The same applies to the method which is to be applied to determine the proper price. Various methods and approaches are possible, of which one may be better than the other, but it is ultimately the tax payer who determines which method is to be applied.
As explained by the Dutch Ministry of Finance, whenever the Netherlands' tax administration undertakes a transfer pricing audit, it should start from the perspective of the method adopted by the taxpayer at the time of the transaction. The implication is that taxpayers are in principle free to choose a transfer pricing method, provided that the method adopted leads to an arm's length outcome for the transaction in question.
In certain situations, however, some methods will generate better results than others. Although taxpayers may be expected to base their choice of a transfer pricing method on the reliability of the method for the particular situation, taxpayers are definitely not expected to weigh up the advantages and disadvantages of all of the various methods and then explain why the method that was ultimately adopted generates the best results in the prevailing conditions (i.e. the best method rule).
Certain situations are also suited for a combination of methods. At the same time, taxpayers are not obliged to use more than one method. The only obligation resting on the taxpayer is to explain why the decision was taken to adopt the particular method that was adopted.
In general terms the following methods can be used to determine an at arm’s length price:
What we can do for you:
We have extensive experience with transfer pricing issues and we are gladly prepared to assist you in this field as well.
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