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Tipi Tips #13: What is the transactional profit split method?
Today’s topic is the transactional profit split method.
The profit split method is arguably the most complex transfer pricing method. This method is used when you have complex supply chains or there are intangible assets such as trademarks and brands involved. For this method, we do not look at the transaction, but at the entire supply chain as a whole.
Imagine you sell a apples of a special quality brand, which sell for a higher price than regular apples. The profit split method looks at the contributions each party within a group makes to that higher value of the apple. Say 70% of the profit can be attributed to the special brand of apples. Then 70% of the profit goes to the party who creates and manages the brand.
That is the profit split method in action.
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Vincent Maessen
Founder Tipi Consultancy