Tipi Tips #7: What are the traditional transfer pricing methods?

Today’s topic is the definition of the traditional transfer pricing methods.

There are five methods we can use to see whether transactions are at arm’s length. The main rule is that we are looking for the most appropriate method given the circumstances. This is because some methods fit better to some types of transactions.

We can classify the five methods in two groups. First of these two groups are the traditional methods. These look on a transaction level and ignore results for the company as a whole. The three traditional methods are the comparable uncontrolled price method, the resale minus method and the cost plus method.

In general, it is more reliable to value transactions using these three methods, because the focus is solely on a specific transaction. That makes it accurate. Look to our next video’s for more information on each of these methods.