Tipi Tips #8: What are the transactional transfer pricing methods?

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

There are five methods we can use to see whether transactions are at arm’s length. We already looked at the traditional methods, so today we cover the transactional methods.

These are the transactional net margin method (or TNMM) and the transactional profit split method (TPSM). Both roughly focus on the results on entity level. They compare the actual results to what result can be expected when you look at the value of their contribution to the product or service as a whole. These methods look at comparable companies performing similar activities as the company you are analyzing.

If the performance of your company is similar to that of comparable companies, then your result is at arm’s length. Look to our next video’s for more information on each method.