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PURPOSE ( ? CIRCUL> IS 6PROVIDE GUID.E ) RESPECT 6! APPLIC,N (! TRANSF] PRIC+ RULES 9 SEC;N #BDG (! ,9COME ,TAX ,ACT 7! ,ACT71 : RCVD ,ROYAL ,ASS5T ON ,JUNE #AH1 #AIIH4 #B4 ,TRANSF] PRICES >E ! PRICES AT : S]VICES1 TANGI# PROP]TY1 & 9TANGI# PROP]TY >E TRAD$ ACR 9T]N,NAL BORD]S 2T RELAT$ "PIES4 #C4 ,? CIRCUL> SETS \ ! ,DE"P;T'S VIEWS ON TRANSF] PRIC+ & AL PROVIDES ! ,DE"P;T'S POSI;N ) RESPECT 6! APPLIC,N (! #AIIE ,ORGANIS,N = ,ECONOMIC ,CO- OP],N & ,DEVELOP;T 7,,OECD71 #C ,9TRODUC;N C#A ,TRANSF] ,PRIC+ ,GUIDEL9ES = ,MULTIN,NAL ,5T]PRISES & ,TAX ,ADM9I/R,NS 7! ,,OECD ,GUIDEL9ES74 #D4 ,! ,,OECD ,GUIDEL9ES %D 2 3SULT$ =A M DETAIL$ 4CUS.N (! PR9CIPLES 3TA9$ 9 ,"PS #B 6#F ( ? CIRCUL>4 #E4 ,SEC;N #BDG & ? CIRCUL> RELATE SPECIFIC,Y 6TRANSAC;NS OR >RANGE;TS 2T A TAXPAY] &A NON-RESID5T P]SON ) :OM ! TAXPAY] DOES N D1L AT >M'S L5G?4 ,H["E1 _M (! PR9CIPLES & ME?ODS \TL9$ 9 ? CIRCUL> MAY AL PROVIDE TAXPAY]S ) G5]AL GUID.E ON ! ATTRIBU;N ( 9COME 2T A P]MAN5T E/ABLI%;T & O!R "PS (! SAME 5T;Y4 #F4 ,! TRANSF] PRICES ADOPT$ 0A GR\P ( NON->M'S L5G? "PIES DIRECTLY A6ECT ! PR(ITS 6BE REPORT$ 0EA* ( ^? "PIES 9 _! RESPECTIVE C.TRIES4 #G4 ,CANADA'S TRANSF] PRIC+ LEGISL,N3 --EMBODIES ! >M'S L5G? PR9CIPLE2 & --REQUIRES T1 = TAX PURPOSES1 ! T]MS & 3DI;NS AGRE$ 62T NON->M'S L5G? "PIES 9 _! -M]CIAL OR F9ANCIAL REL,NS #D ,9TRODUC;N D#A 2 ^? T "O WD H EXPECT$ _H ! "PIES BE5 D1L+ ) EA* O!R AT >M'S L5G?4 ,? 5SURES T TAXPAY]S1 :O >E NON->M'S L5G? MEMB]S (A GR\P & 5GAGE 9 TRANSAC;NS ) O!R MEMB]S (! GR\P1 REPORT SUB/ANTI,Y ! SAME AM.T ( 9COME Z !Y WD IF !Y _H BE5 D1L+ ) EA* O!R AT >M'S L5G?4 #H4 ,! ,,OECD & ,CANADA 3T9UE 65DORSE ! >M'S L5G? PR9CIPLE Z ! BASIC RULE GOV]N+ ! TAX TR1T;T ( NON->M'S L5G? CROSS-BORD] TRANSAC;NS4 --------------------------------------#B #I4 ,! >M'S L5G? PR9CIPLE3 --TR1TS A GR\P ( "PIES N D1L+ AT >M'S L5G? Z IF !Y OP]ATE Z SEP>ATE 5TITIES R ?AN Z 9SEP>A# "PS (A S+LE UNIFI$ BUSI;S2 & --IS G5],Y BAS$ ON A -P>ISON (3 --PRICES OR M>G9S 2T NON->M'S L5G? "PIES ON CROSS-BORD] TRANSAC;NS 783TROLL$ TRANSAC;NS072 ) #E ,9TRODUC;N A#B --PRICES OR M>G9S ON SIMIL> TRANSAC;NS 2T >M'S L5G? "PIES 78UNCONTROLL$ TRANSAC;NS074 #AJ4 ,:E!R A TAXPAY] HAS ADH]$ 6! >M'S L5G? PR9CIPLE IS A FACTUAL DET]M9,N 6BE REVIEW$ ON A CASE-BY-CASE BASIS4 ,DEF9I;NS ,= PURPOSES ( ? CIRCUL>1 ! FOLL[+ T]MS & EXPRES.NS1 UN.S O!RWISE SPECIFI$1 %D 2 R1D Z FOLL[S3 .TAXPAY]1 .P]SON OR ."PY 9CLUDE A "PN]%IP2 .TRANSAC;N 9CLUDES A S]IES ( TRANSAC;NS1 AN >RANGE;T OR AN EV5T2 .PROP]TY 9CLUDES BO? TANGI# & 9TANGI# PROP]TY2 .9TANGI# .PROP]TY 9CLUDES3 --."RS 6USE ASSETS S* Z PAT5TS1 TRADEM>KS1 TRADE "NS1 DESIGNS OR MODELS2 & #F ,DEF9I;NS B#B --.9TELLECTUAL .PROP]TY S* Z "K-H[ & TRADE SECRETS2 .PRODUCT 9CLUDES TANGI# PROP]TY1 9TANGI# PROP]TY & S]VICES2 .UNCONTROLL$ .TRANSAC;NS0 W EI 2 TRANSAC;NS3 --2T TWO >M'S L5G? "PIES \TSIDE ! GR\P2 OR --2T A NON->M'S L5G? "PY (A GR\P & AN >M'S L5G? "PY \TSIDE ! GR\P2 .3TROLL$ .TRANSAC;NS REF]S 6TRANSAC;NS 2T "PIES N D1L+ AT >M'S L5G?4 ,"P #A4 ,! ,LAW #AA4 ,SEC;N #BDG (! ,ACT 3TA9S ! MA9 PROVI.NS RELAT+ 6TRANSF] PRIC+4 ,! FOLL[+ IS A BRIEF DESCRIP;N (! PR9CIPAL SUBSEC;NS ( T SEC;N4 #AB4 ,SUBSEC;N #BDG7#B7 (! ,ACT APPLIES 6A TRANSAC;N3 --2T A TAXPAY] &A NON-RESID5T P]SON ) :OM ! TAXPAY] DOES N D1L AT >M'S L5G?2 OR #G ,"P #A C#B --2T A "PN]%IP OR A MEMB] (A "PN]%IP &A NON-RESID5T P]SON ) :OM ! "PN]%IP OR MEMB] DOES N D1L AT >M'S L5G? 7OR A "PN]%IP ( : S* A NON-RESID5T IS A MEMB]74 #AC4 ,": ! T]MS OR 3DI;NS ( 3TROLL$ TRANSAC;NS DI6] F ^? T WD H BE5 MADE 2T P]SONS D1L+ AT >M'S L5G?1 ! FOLL[+ APPLIES3 --,ANY AM.T DET]M9$ "U ! ,ACT =A TAXPAY] %1 SUBJECT 6! PROVI.NS ( SUBSEC;N #BDG7#AJ71 2 ADJU/$ "U SUBSEC;N #BDG7#B7 (! ,ACT4 ,! ADJU/$ AM.T W REFLECT ^? AM.TS T WD H BE5 DET]M9$ =! TAXPAY] IF ! T]MS & 3DI;NS (! TRANSAC;NS 7 ^? T WD H BE5 MADE 2T >M'S L5G? P]SONS4 --,SUBSEC;N #BDG7#B7 (! ,ACT P]MITS ! RE"*IZ,N (! TRANSAC;N 6DET]M9E ! AM.TS T WD H BE5 DET]M9$ IF ! TRANSAC;N _H BE5 "O T WD H BE5 5T]$ 960P]SONS D1L+ AT >M'S L5G?1 "U ! FOLL[+ 3DI;NS3 #H ,"P #A D#B --IF P]SONS 5T] 96A TRANSAC;N T WD N H BE5 5T]$ 962T P]SONS D1L+ AT >M'S L5G?2 & --X IS R1SONA# 63SID] T ! TRANSAC;N 0 N 5T]$ 96PRIM>ILY = BONA FIDE PURPOSES O!R ?AN 6OBTA9 A TAX B5EFIT4 #AD4 ,SUBSEC;N #BDG7#C7 (! ,ACT R5D]S A TAXPAY] LIA# 6A P5ALTY1 IF ! NET RESULT ( C]TA9 ADJU/;TS MADE "U SUBSEC;N #BDG7#B7 (! ,ACT =A TAXPAY] 9 A TAX YE> EXCE$S ! LESS] ( #AJ@3P (! TAXPAY]'S GROSS REV5UE =! YE> & 4#E1JJJ1JJJ4 #AE4 ,) REG>D 6! NET RESULT CALCUL,N = PURPOSES (! P5ALTY1 ! FOLL[+ ADJU/;TS APPLY3 --.UPW>D .ADJU/;TS 9 TRANSAC;NS = : ! TAXPAY] FAIL$ 6MAKE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? TRANSF] PRICES OR ALLOC,NS2 & --.D[NW>D .ADJU/;TS 9 TRANSAC;NS = : ! TAXPAY] HAS MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? #I ,"P #A E#B TRANSF] PRICES OR ALLOC,NS 7SUBJECT 6! ,M9I/]'S 4CRE;N "U SUBSEC;N #BDG7#AJ774 #AF4 ,= PURPOSES ( SUBSEC;N #BDG7#C7 (! ,ACT3 .,UPW>D .ADJU/;TS >E ADJU/;TS T RESULT IN3 --AN 9CR1SE 9 A TAXPAY]'S 9COME2 --A DECR1SE 9 A TAXPAY]'S LOSS2 OR --A DECR1SE 9 ! TAXPAY]'S CAPITAL EXP5DITURES2 =! YE>1 & .,D[NW>D .ADJU/;TS >E ADJU/;TS T RESULT IN3 --A DECR1SE 9 A TAXPAY]'S 9COME2 --AN 9CR1SE 9 A TAXPAY]'S LOSS2 OR --AN 9CR1SE 9 ! TAXPAY]'S CAPITAL EXP5DITURES2 =! YE>4 --------------------------------------#C #AG4 ,! ISSUE ( :E!R A TAXPAY] HAS MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? TRANSF] PRICES OR ALLOC,NS = PURPOSES (! P5ALTY "U SUBSEC;N #BDG7#C7 #AJ ,"P #A A#C (! ,ACT IS 4CUSS$ 9 ,"P #G ( ? CIRCUL>4 #AH4 ,SUBSEC;N #BDG7#D7 (! ,ACT DEEMS A TAXPAY] N 6H MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? TRANSF] PRICES OR ALLOC,NS 9 RESPECT (A TRANSAC;N = PURPOSES (! P5ALTY "U SUBSEC;N #BDG7#C7 (! ,ACT1 UN.S ! TAXPAY] SATISFIES ! 3DI;NS SET \ 9 SUBSEC;N #BDG7#D7 (! ,ACT4 ,TAXPAY]S >E REQUIR$ 6MAKE OR OBTA9 C]TA9 RECORDS OR DOCU;TS ON OR 2F ! FIL+ DATE =! TAX YE>1 ! 8DOCU;T,N DUE DATE0 7DEF9$ 9 SUBSEC;N #BDG7#A771 & PROVIDE ^? RECORDS & DOCU;TS 6! ,M9I/] )9 #C MON?S (! RECEIPT (A WRITT5 REQUE/ 6D S4 #AI4 ,SUBSEC;N #BDG7#B7 (! ,ACT APPLIES 6TAX YE>S T 2G9 AF #AIIG4 ,G5],Y1 SUBSEC;NS #BDG7#C7 & 7#D7 (! ,ACT APPLY 6ADJU/;TS MADE "U SUBSEC;N #BDG7#B7 (! ,ACT = TAX YE>S T 2G9 AF #AIIH4 ,! P5ALTY PROVI.NS D N APPLY 6TRANSAC;NS -PLET$ 2F ,SEPTEMB] #AA ,"P #A B#C #AA1 #AIIG1 : 5T] 96! CALCUL,N ( TAXA# 9COME 9 A SUBSEQU5T YE>4 ,:E!R ! TRANSAC;N IS "U AN AGREE;T1 SIGN$ 2F ,SEPTEMB] #AA1 #AIIG1 IS IRRELEVANT4 ,! DET]M9+ FACTOR IS ! DATE ! TRANSAC;N ACTU,Y TAKES PLACE4 .,= .EXAMPLE1 A TRANSF] PRIC+ ADJU/;T 6! CO/S ( GDS SOLD 9 #AIII MAY RELATE 6PROP]TY TRANSF]R$ 2F ,SEPTEMB] #AA1 #AIIG1 & HELD 9 9V5TORY UNTIL X 0 SOLD 9 #AIII4 ,S* AN ADJU/;T WD N 2 3SID]$ = PURPOSES (! P5ALTY4 #BJ4 ,9 A4I;N 6A6ECT+ ! CROSS-BORD] MOVE;T ( PROP]TY & S]VICES1 SEC;N #BDG CD 2 APPLI$ 6F9ANCIAL TRANSAC;NS4 ,9 !ORY1 SEC;N #BDG CD 2 APPLI$ 6A WIDE V>IETY ( >RANGE;TS RESULT+ 9 =EIGN A3RUAL PROP]TY 9COME 6,CANADIAN %>EHOLD]S4 ,9 G5]AL1 ! ,DE"P;T 3SID]S T SUBSEC;N #BDG7#B7 DOES N *ANGE ! EXI/+ LAW Z X RELATES 69T]-CORPORATE DEBT & EQU;Y 9VE/;TS4 ,! ,DE"P;T W USU,Y USE SUBSEC;N #BDE7#B7 IF ! #AB ,"P #A C#C >RANGE;T IS "P ( AN A7RESSIVE TAX PLAN OR IS POT5TI,Y ABUSIVE 7E4G41 LOSS IMPORT,N71 B CD AL USE SUBSEC;N #BDG7#B7 6*ALL5GE S* AN >RANGE;T4 #BA4 ,Z A G5]AL RULE1 ! SPECIFIC PROVI.NS (! ,ACT--RELAT+ 6LOANS & O!R 9DEBT$;S 6OR F NON-RESID5TS1 : >E 3TA9$ 9 SEC;NS #AG & #HJ.D1 SUBSEC;NS #AE7#B7 & #AH7#D7--WD 2 APPLI$ 2F 3SID]+ ! M G5]AL PROVI.NS ( SEC;N #BDG4 ,^! SPECIFIC PROVI.NS D1L ) SITU,NS 9 : A ,CANADIAN CORPORATE TAXPAY]3 --DOES N *>GE AN ADEQUATE RATE ( 9T]E/ ON A LOAN OR O!R 9DEBT$;S 6A NON- RESID5T2 --RCVS AN 9T]E/-FREE OR L[-9T]E/ LOAN F A NON-RESID5T2 OR --IS ?9LY CAPITALIZ$4 #BB4 ,X WD USU,Y 2 9CONSI/5T )! _S (! ,ACT =! ,DE"P;T 6APPLY ! M G5]AL PROVI.NS ( SEC;N #BDG1 "!BY DEEM+ #AC ,"P #A D#C 9T]E/ 6BE RCVD OR RECEIVA# ON ! 9T]- CORPORATE LOANS1 9 ! FOLL[+ SITU,NS3 --": A LOAN IS MADE 0A =EIGN A6ILIATE (A CORPOR,N RESID5T 9 ,CANADA 6! CORPOR,N2 OR --": A LOAN IS MADE 0"O =EIGN A6ILIATE (A CORPOR,N RESID5T 9 ,CANADA 6ANO!R =EIGN A6ILIATE ( T RESID5T CORPOR,N & SUBSEC;N #HJ.D7#B7 DOES N APPLY4 #BC4 ,": SUBSEC;N #HJ.D7#B7 DOES APPLY1 ! AM.T (! B5EFIT IS EXCLUD$ 9 ! CALCUL,N ( =EIGN A3RUAL PROP]TY 9COME (! =EIGN A6ILIATE "U ,A7D7 (! DEF9I;N ( 8=EIGN A3RUAL PROP]TY 9COME0 9 SUBSEC;N #IE7#A74 ,! ,DE"P;T DOES N PLAN 6*ANGE XS ASSESS+ PRACTICES 9 ? REG>D4 #BD4 ,SPECIFIC PROVI.NS 9 ! ,ACT D1L ) 9T]-COMPANY DEBT &! ASSOCIAT$ 9T]E/ *>GES4 ,H["E1 ! ,DE"P;T RECOGNIZES T CR$IT T]MS & F9ANC+ >RANGE;TS >E AM;G ! _M RELAT$ FACTORS 6BE 3SID]$ 9 ! EVALU,N ( TRANSF] PRICES4 #AD ,"P #A E#C #BE4 ,SUBSEC;N #BDG7#AJ7 PROVIDES ! ,M9I/] )! AU?OR;Y 6MAKE D[NW>D ADJU/;TS4 ,D[NW>D ADJU/;TS >E MADE ONLY IF1 9 ! OP9ION (! ,M9I/]1 ! CIRCUM/.ES 9DICATE ! ADJU/;TS >E APPROPRIATE4 #BF4 ,H["E1 ! ,M9I/] MAY DECIDE N 6EX]CISE 8 4CRE;N "U #BDG7#AJ7 ":3 --! TAXPAY]'S REQUE/ HAS BE5 PROMPT$ 0! AC;NS (A =EIGN TAX AU?OR;Y &! TAXPAY] HAS ! "R 6REQUE/ RELIEF "U ! ,MUTUAL ,AGREE;T ,PROC$URE >TICLE (! APPLICA# TR1TY2 OR --! TAXPAY]'S REQUE/ C 2 3SID]$ ABUSIVE4 #BG4 ,! ,DE"P;T'S G5]AL POLICY REG>D+ TAXPAY]-9ITIAT$ ADJU/;TS T REDUCE TAX PAYA# IS \TL9$ 9 ! CURR5T V].N ( ,9=M,N ,CIRCUL> #GE-G & ,9=M,N ,CIRCUL> #HD-A4 #AE ,"P #B4 ,! ,>M'S ,L5G? F#C ,PR9CIPLE #BH4 ,! >M'S L5G? PR9CIPLE REQUIRES T1 = TAX PURPOSES1 ! T]MS & 3DI;NS AGRE$ 62T NON->M'S L5G? "PIES 9 _! -M]CIAL OR F9ANCIAL REL,NS 2 ^? T "O WD H EXPECT$ _H ! 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"PIES %D N 2 US$ = PURPOSES ( ^! -P>ISONS1 2C ! T]MS & 3DI;NS MAY N 2 >M'S L5G?4 #CB4 ,P>AGRAPHS #A.AI "? #A.CE (! ,,OECD ,GUIDEL9ES 9DICATE T A NUMB] ( FACTORS MAY 9FLU;E ! DEGREE ( -P>ABIL;Y ( TRANSAC;NS4 ,^! FACTORS 9CLUDE3 --! "*I/ICS (! PROP]TY OR S]VICES 2+ PUR*AS$ OR SOLD2 --! FUNC;NS P]=M$ 0! "PIES 6! TRANSAC;NS 7TAK+ 96A3.T ASSETS US$ & RISKS ASSUM$72 --! T]MS & 3DI;NS (! 3TRACT2 #AG ,"P #B B#D --! ECONOMIC CIRCUM/.ES (! "PIES2 & --! BUSI;S /RATEGIES PURSU$ 0! "PIES4 #CC4 ,TAXPAY]S M/ EX]CISE JUDGE;T 9 DET]M9+ ! DEGREE ( -P>ABIL;Y ( TRANSAC;NS4 ,SELECT+ ! MO/ APPROPRIATE PRIC+ ME?OD DEP5DS L>GELY ON ! ASSESS;T (! -P>ABIL;Y ( TRANSAC;NS4 ,! AVAILABIL;Y ( QUAL;Y 9=M,N ON ! FACTORS PRES5T 9 ! 3TROLL$ TRANSAC;NS W 9FLU;E ? DET]M9,N4 #CD4 ,! ,DE"P;T RECOGNIZES T TRANSF] PRIC+ IS N AN EXACT SCI;E4 ,! APPLIC,N (! MO/ APPROPRIATE TRANSF] PRIC+ ME?ODOLOGY MAY PRODUCE A RANGE ( RESULTS4 ,! ,DE"P;T RELIES ON ! FACTS & CIRCUM/.ES (! CASE 6DET]M9E A RANGE1 OR ! PO9T 9 A RANGE1 T IS ! 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PRICE1 TAXPAY]S %D AL 3SID] SEP>AT+ TRANSAC;NS = TWO R1SONS3 #BA ,"P #B A#E --PAY;TS ON "S TRANSAC;NS 6A NON- RESID5T >E SUBJECT 6,"P ,,XIII )HOLD+ TAX1 :ILE O!RS >E N2 & --TAX TR1TIES MAY SUBJECT DI6]5T TYPES ( PAY;TS 6DI6]5T RATES ( )HOLD+ TAX4 #DB4 ,H["E1 ": ! NORMAL 9DU/RY PRACTICE IS 6SET "O PRICE =A -B9,N ( TRANSAC;NS 7E4G41 GDS &! ASSOCIAT$ 9TANGI# PROP]TY7 X MAY N 2 R1SONA# 6EXPECT 6F9D QUAL;Y DATA AVAILA# 6SET ! PRICE = SEP>ATE TRANSAC;NS4 ,"!=E1 ! TOTAL AM.T MAY 2 TAX$ "U EI ,"P ;,I OR ,"P ,,XIII (! ,ACT1 Z ! CASE MAY BE1 ON AN A7REGATE BASIS4 #DC4 ,! ,DE"P;T G5],Y A3EPTS BUSI;S TRANSAC;NS Z !Y >E /RUCTUR$ 0! "PIES4 ,! FACT T A TAXPAY] HAS 5T]$ 96A TRANSAC;N )A NON->M'S L5G? NON-RESID5T "PY 9 A =M T WD N EXI/ 2T >M'S L5G? "PIES DOES N NECESS>ILY IMPLY T ! TRANSAC;N IS 9CONSI/5T )! >M'S L5G? PR9CIPLE4 ,? MAY REFLECT ! FACT T "PIES N D1L+ AT >M'S L5G? OP]ATE "U #BB ,"P #B B#E DI6]5T -M]CIAL CIRCUM/.ES ?AN D "PIES TRANSACT+ AT >M'S L5G?4 #DD4 ,"! >E 9/.ES ": X IS NEC 6RE"*IZE A TRANSAC;N = TAX PURPOSES2 H["E1 Z 9DICAT$ 9 ! ,,OECD ,GUIDEL9ES1 ^? 9/.ES >E LIMIT$4 ,! ,,OECD ,GUIDEL9ES ID5TIFY TWO EXCEP;NAL SITU,NS ": ! RE"*IZ,N (A TRANSAC;N WD 2 3SID]$ 7SEE P>AGRAPH #A.CG (! ,,OECD ,GUIDEL9ES74 #DE4 ,P>AGRAPH #BDG7#B77B7 (! ,ACT1 : PROVIDES ! AU?OR;Y 6RE"*IZE A TRANSAC;N1 /ATES T A TRANSAC;N C 2 RE"*IZ$ ONLY AF MEET+ ! FOLL[+ TWO 3DI;NS3 --! TRANSAC;N OR S]IES M/ 2 "O T WD N H BE5 5T]$ 962T P]SONS D1L+ AT >M'S L5G?2 & --X C 2 R1SONA# 63SID] T ! TRANSAC;N OR S]IES ( TRANSAC;NS 0 N 5T]$ 96PRIM>ILY = BONA FIDE PURPOSES O!R ?AN 6OBTA9 A TAX B5EFIT4 #DF4 ,ALL PROPOS$ ASSESS;TS 6RE"*IZE A TRANSAC;N "U P>AGRAPH #BDG7#B77B7 W 2 REF]R$ 6! ,TRANSF] ,PRIC+ #BC ,"P #B C#E ,REVIEW ,-MITTEE .2F ! ASSESS;T IS ISSU$1 65SURE FAIR & 3SI/5T APPLIC,N4 ,"P #C4 ,ME?ODS--,APPLIC,N (! ,>M'S ,L5G? ,PR9CIPLE #DG4 ,SEC;N #BDG IS 9T5D$ 6REFLECT ! >M'S L5G? PR9CIPLE EXPRESS$ 9 ! ,,OECD ,GUIDEL9ES4 #DH4 ,! ,,OECD ,GUIDEL9ES RECOMM5D A NUMB] ( TRANSF] PRIC+ ME?ODS 7"KN Z 8! RECOMM5D$ ME?ODS07 T1 :5 APPLI$ CORRECTLY1 RESULT 9 AN >M'S L5G? PRICE OR ALLOC,N4 ,^! ME?ODS >E DIVID$ 96TWO GR\PS3 --TRADI;NAL TRANSAC;N ME?ODS3 --! -P>A# UNCONTROLL$ PRICE 7,,CUP7 ME?OD2 --! RESALE PRICE ME?OD2 & --! CO/ PLUS ME?OD2 & --TRANSAC;NAL PR(IT ME?ODS3 --! PR(IT SPLIT ME?OD2 & #BD ,"P #C D#E --! TRANSAC;NAL NET M>G9 ME?OD 7,,TNMM74 #DI4 ,! ,ACT DOES N IMPOSE AN EXPLICIT HI]>*Y ( TRANSF] PRIC+ ME?ODOLOGIES1 NOR DOES X SPECIFIC,Y M&ATE ME?ODS 9 ORD] 6MEET ! >M'S L5G? PR9CIPLE4 ,H["E1 ! ,DE"P;T'S VIEW IS T "! IS A NATURAL HI]>*Y 9 ! ME?ODS4 ,C]TA9 ME?ODS PROVIDE M RELIA# RESULTS ?AN O!RS1 DEP5D+ ON ! DEGREE ( -P>ABIL;Y 2T 3TROLL$ & UNCONTROLL$ TRANSAC;NS4 #EJ4 ,! RELIABIL;Y ( ANY ME?OD IS AL A6ECT$ 0! AVAILABIL;Y ( DATA &! DEGREE ( A3URACY ) : ANY NEC ADJU/;TS C 2 MADE 6A*IEVE -P>ABIL;Y4 ,= 3TROLL$ & UNCONTROLL$ TRANSAC;NS 6BE 3SID]$ -P>A#1 "O M/ 2 A# 63FIRM .EI3 --T "! >E NO DI6];ES 2T ! TRANSAC;NS : WD MAT]I,Y A6ECT ! PRICE 9 ! OP5 M>KET2 .OR1 IF "! >E MAT]IAL DI6];ES1 --T RELIA# ADJU/;TS C 2 MADE 6ELIM9ATE ! MAT]IAL E6ECTS ( S* DI6];ES4 #BE ,"P #C E#E #EA4 ,TAXPAY]S1 9 APPLY+ ! RECOMM5D$ ME?ODS & TAK+ 96A3.T ! E6ECTS ON PR(ITS DUE 6PRODUCT LIFE CYCLES & %ORT-T]M ECONOMIC 3DI;NS1 %D 3SID] MULTIPLE YE> DATA =3 --! TAXPAY]2 & --! >M'S L5G? "PY Z A -P>A#4 #EB4 ,! ,,OECD ,GUIDEL9ES1 AT ,*APT] ,,II & ,,III1 P>AGRAPHS #B.DI1 #C.DI & #C.EJ1 /ATE T3 --! TRADI;NAL TRANSAC;N ME?ODS >E PREF]A# 6! TRANSAC;NAL PR(IT ME?ODS2 & --------------------------------------#F --! TRANSAC;NAL PR(IT ME?ODS >E US$ Z ME?ODS ( LA/ RESORT1 :5 ! USE ( TRADI;NAL TRANSAC;N ME?ODS _C 2 RELIABLY APPLI$ OR _C 2 APPLI$ AT ALL4 ,! ,DE"P;T 5DORSES ? VIEW4 #EC4 ,! ,,CUP ME?OD1 IF APPLICA#1 CLE>LY PROVIDES ! HIABIL;Y =! TRADI;NAL TRANSAC;N ME?ODS 2C X3 #BF ,"P #C A#F --FOCUSES DIRECTLY ON ! PRICE (A TRANSAC;N2 & --REQUIRES BO? FUNC;NAL & PRODUCT -P>ABIL;Y4 #ED4 ,AL? ! ,,CUP ME?OD PROVIDES ! MO/ DIRECT & RELIA# M1NS ( E/ABLI%+ AN >M'S L5G? PRICE1 O!R TRADI;NAL TRANSAC;N ME?ODS MAY H 6BE US$ ":3 --"! IS N 5 QUAL;Y 9=M,N AVAILA# ) RESPECT 6UNCONTROLL$ TRANSAC;NS2 OR --X IS N POSSI# 6RELIABLY QUANTIFY ! DI6];ES 2T 3TROLL$ & UNCONTROLL$ TRANSAC;NS4 #EE4 ,AT "S PO9T1 DI6];ES 2COME S SIGNIFICANT T ! ,,CUP ME?OD W NO L;G] PRODUCE ! MO/ RELIA# M1SURE ( AN >M'S L5G? PRICE4 .,= .EXAMPLE1 X MAY N 2 POSSI# 6MAKE APPROPRIATE ADJU/;TS DUE 6MAT]IAL M>KET DI6];ES4 #EF4 ,! DI6];E 2T ! ,,CUP ME?OD &! CO/ PLUS OR RESALE PRICE ME?ODS IS Z FOLL[S3 #BG ,"P #C B#F --! ,,CUP ME?OD -P>ES PRICES ( -P>A# PROP]TY OR S]VICES2 & --! CO/ PLUS & RESALE PRICE ME?ODS E/ABLI% ! M>G9 T A TAXPAY] MID =! FUNC;NS P]=M$1 ASSETS US$1 & RISKS ASSUM$4 #EG4 ,2C ! CO/ PLUS & RESALE PRICE ME?ODS OP]ATE AT ! GROSS M>G9 LEVEL1 PRODUCT DI6];ES H A LESS SIGNIFICANT IMPACT ON ! RELIABIL;Y (! RESULTS ?AN 9 ! ,,CUP ME?OD2 H["E1 ! CLOS] ! -P>ABIL;Y ( PRODUCTS1 ! M RELIA# ! RESULT W BE4 #EH4 ,! *OICE 2T ! RESALE PRICE ME?OD OR ! CO/ PLUS ME?OD DEP5DS ON ! -P>ABIL;Y ( QUAL;Y DATA AVAILA# = EA* (! "PIES 6! TRANSAC;N4 ,QUAL;Y -P>A# 9=M,N IS G5],Y M R1DILY AVAILA# =! L1/ -PLEX "PY4 .,= .EXAMPLE1 ! RESALE PRICE ME?OD MAY 2 ! MO/ APPROPRIATE *OICE IF ! L1/ -PLEX "PY IS A 4TRIBUTOR4 #BH ,"P #C C#F #EI4 ,TAXPAY]S W H 63SID] ! TRANSAC;NAL PR(IT ME?ODS IF3 --NO QUAL;Y DATA >E AVAILA# 6APPLY ! CO/ PLUS OR RESALE PRICE ME?ODS2 OR --! AVAILA# DATA 6APPLY ! CO/ PLUS OR RESALE PRICE ME?ODS H MAT]IAL DI6];ES T _C RELIABLY 2 ADJU/$4 #FJ4 ,! ,,OECD ,GUIDEL9ES D N EXPRESS A CLE> PREF];E = "O TRANSAC;NAL PR(IT ME?OD OV] ! O!R4 ,9 FACT1 !Y 4C\RAGE ! USE ( BO? ME?ODS4 ,H["E1 ! PR(IT SPLIT ME?OD W G5],Y PROVIDE A M RELIA# E/IMATE ( AN >M'S L5G? RESULT ?AN ! ,,TNMM UN.S A HI< DEGREE ( -P>ABIL;Y1 9CLUD+ ! -P>ABIL;Y ( 9TANGI# ASSETS1 C 2 E/ABLI%$4 ,? IS SU7E/$ BY3 --! ,,OECD'S EVALU,N ( EA* (! TRANSAC;NAL PR(IT ME?ODS2 & --! ,DE"P;T'S EXP]I;E )! USE ( ^! ME?ODS4 #FA4 ,! MO/ APPROPRIATE ME?OD 9 A GIV5 SET ( CIRCUM/.ES W 2 ! "O T #BI ,"P #C D#F PROVIDES ! HIABIL;Y 2T TRANSAC;NS4 ,ONCE A TAXPAY] E/ABLI%ES -P>ABIL;Y AT A "PICUL> LEVEL )9 ! HI]>*Y ( ME?ODS1 ! TAXPAY] IS N REQUIR$ 63SID] OR APPLY A L[]-RANK+ ME?OD4 ,ON ! O!R H&1 IF ! TAXPAY] _C E/ABLI% -P>ABIL;Y AT ANY LEVEL1 O!R ME?ODS %D 2 3SID]$ 9 ORD] 6DET]M9E ! MO/ APPROPRIATE ME?OD4 #FB4 ,9 C]TA9 CASES1 TAXPAY]S MAY H "S D\BTS AB ! RELIABIL;Y (! RESULTS PRODUC$ 0A "PICUL> ME?OD4 ,2C ! RESULTS PRODUC$ 0EA* (! RECOMM5D$ ME?ODS %D H "S 3SI/5CY1 TAXPAY]S MAY WI% 63FIRM _! RESULTS 0APPLY+ ANO!R ME?OD4 #FC4 ,! ,DE"P;T W EXAM9E ! APPLIC,N (! ME?OD SELECT$ 0A TAXPAY] 65SURE T ! SELECT$ ME?OD PRODUCES ! MO/ RELIA# M1SURE ( AN >M'S L5G? RESULT4 .,= .EXAMPLE1 IF A TAXPAY] US$ ! ,,TNMM 6E/ABLI% XS TRANSF] PRICE &! ,DE"P;T OBTA9S -P>A# 9=M,N AT ! #CJ ,"P #C E#F ,,CUP LEVEL1 ! ,DE"P;T IS (! VIEW T ! ,,CUP ME?OD W PROVIDE BETT] EVID;E ( AN >M'S L5G? TRANSF] PRICE4 ,A4 ,TRADI;NAL ,TRANSAC;N ,ME?ODS ,-P>A# UNCONTROLL$ PRICE 7,,CUP7 ME?OD #FD4 ,! ,,CUP ME?OD PROVIDES ! BE/ EVID;E ( AN >M'S L5G? PRICE4 ,A ,,CUP MAY >ISE ":3 --! TAXPAY] OR ANO!R MEMB] (! GR\P .SELLS ! "PICUL> PRODUCT1 9 SIMIL> QUANTITIES & "U SIMIL> T]MS 6>M'S L5G? "PIES 9 SIMIL> M>KETS 7AN 9T]NAL -P>A#72 --AN >M'S L5G? "PY .SELLS ! "PICUL> PRODUCT1 9 SIMIL> QUANTITIES & "U SIMIL> T]MS 6ANO!R >M'S L5G? "PY 9 SIMIL> M>KETS 7AN EXT]NAL -P>A#72 --! TAXPAY] OR ANO!R MEMB] (! GR\P .BUYS ! "PICUL> PRODUCT1 9 #CA ,"P #C F#F SIMIL> QUANTITIES & "U SIMIL> T]MS F >M'S L5G? "PIES 9 SIMIL> M>KETS 7AN 9T]NAL -P>A#72 OR --------------------------------------#G --AN >M'S L5G? "PY .BUYS ! "PICUL> PRODUCT1 9 SIMIL> QUANTITIES & "U SIMIL> T]MS F ANO!R >M'S L5G? "PY 9 SIMIL> M>KETS 7AN EXT]NAL -P>A#74 #FE4 ,9CID5TAL SALES (A PRODUCT 0A TAXPAY] 6>M'S L5G? "PIES MAY N 2 9DICATIVE ( AN >M'S L5G? PRICE =! SAME PRODUCT TRANSF]R$ 2T NON->M'S L5G? "PIES1 UN.S ! NON->M'S L5G? SALES >E AL 9CID5TAL4 #FF4 ,TRANSAC;NS MAY S]VE Z -P>A#S DESPITE ! EXI/;E ( DI6];ES 2T ^? TRANSAC;NS & NON->M'S L5G? TRANSAC;NS1 IF3 --! DI6];ES C 2 M1SUR$ ON A R1SONA# BASIS2 & --APPROPRIATE ADJU/;TS C 2 MADE 6ELIM9ATE ! E6ECTS ( ^? DI6];ES4 #FG4 ,": DI6];ES EXI/ 2T 3TROLL$ & UNCONTROLL$ TRANSAC;NS1 X MAY 2 #CB ,"P #C A#G DI6ICULT 6DET]M9E ! ADJU/;TS NEC 6ELIM9ATE ! E6ECT ON TRANSF] PRICES4 ,H["E1 ! DI6ICULTIES T >ISE 9 MAK+ ADJU/;TS %D N R\T9ELY PRECLUDE ! POT5TIAL APPLIC,N (! ,,CUP ME?OD4 ,"!=E1 TAXPAY]S %D MAKE R1SONA# EF=TS 6ADJU/ = DI6];ES4 #FH4 ,! USE (! ,,CUP ME?OD PRECLUDES AN A4I;NAL ALLOC,N ( RELAT$ PRODUCT DEVELOP;T CO/S OR OV]H1D UN.S S* *>GES >E AL MADE 6>M'S L5G? "PIES4 ,? PREV5TS ! D\# DEDUC;N ( ^? CO/S--ONCE Z AN ELE;T (! TRANSF] PRICE & ONCE Z AN ALLOC,N4 #FI4 ,,CUP ME?OD EXAMPLE3 ,NOTE3 ,! EXAMPLES 9 ? CIRCUL> >E /RICTLY =! PURPOSE ( ILLU/RAT+ ! APPLIC,N (! V>I\S ME?ODS4 ,!Y >E SIMPLIFI$ HYPO!TICAL EXAMPLES &! NUM]ICAL AM.TS1 REPORT$ Z PRICES1 M>K- UPS1 M>G9S1 ADJU/;TS1 ETC41 H NO FACTUAL BASIS1 & %D N 2 TAK5 Z E/ABLI%+ A B5*M>K OR /&>D4 #CC ,"P #C B#G ,CANCO1 A ,CANADIAN -PANY1 SELLS -MOD;Y ;,X DIRECTLY 6XS ,G]MAN SUBSIDI>Y1 ,G]MANCO1 = XS [N 3SUMP;N4 ,-MOD;Y ;,X IS ACTIVELY TRAD$ 9 ,G]_M & AN AV]AGE DAILY ,G]MAN TRANSAC;N PRICE IS R1DILY AVAILA#4 ,! AV]AGE DAILY ,G]MAN TRANSAC;N PRICE REPRES5TS A DELIV]$ PRICE & 9CLUDES ANY FREI %IP;T IS CALCULAT$ Z FOLL[S3 ,AV]AGE DAILY ,G]MAN TRANSAC;N PRICE P] TON """"""""" 4#EGF ,DEDUCT ,ADJU/;T = FREIM'S L5G? "PIES 7(A PRODUCT PUR*AS$ F AN NON->M'S L5G? 5T]PRISE71 REDUC$ 0A -P>A# GROSS M>G94 ,? -P>A# GROSS M>G9 IS DET]M9$ 0REF];E 6EI3 --! RESALE PRICE M>G9 E>N$ 0A MEMB] (! GR\P 9 -P>A# UNCONTROLL$ TRANSAC;NS 79T]NAL -P>A#72 OR --! RESALE PRICE M>G9 E>N$ 0AN >M'S L5G? 5T]PRISE 9 -P>A# UNCONTROLL$ TRANSAC;NS 7EXT]NAL -P>A#74 #GA4 ,"U ? ME?OD1 ! >M'S L5G? PRICE ( GDS ACQUIR$ 0A TAXPAY] 9 A NON->M'S L5G? TRANSAC;N IS DET]M9$ 0REDUC+ ! PRICE R1LIZ$ ON ! RESALE (! GDS 0! TAXPAY] 6AN >M'S L5G? "PY1 0AN APPROPRIATE GROSS M>G94 ,? GROSS M>G91 ! RESALE M>G91 %D ALL[ ! SELL] TO3 --RECOV] XS OP]AT+ CO/S2 & --E>N AN >M'S L5G? PR(IT BAS$ ON ! FUNC;NS P]=M$1 ASSETS US$1 &! RISKS ASSUM$4 #CE ,"P #C D#G #GB4 ,": ! TRANSAC;NS >E N -P>A# 9 ALL WAYS &! DI6];ES H A MAT]IAL E6ECT ON PRICE1 ! TAXPAY] M/ MAKE ADJU/;TS 6ELIM9ATE ! E6ECT ( ^? DI6];ES4 ,! M -P>A# ! FUNC;NS1 RISKS & ASSETS1 ! M LIKELY T ! RESALE PRICE ME?OD W PRODUCE AN APPROPRIATE E/IMATE ( AN >M'S L5G? RESULT4 #GC4 ,AN EXCLUSIVE "R 6RESELL GDS W USU,Y 2 REFLECT$ 9 ! RESALE M>G94 #GD4 ,! RESALE PRICE ME?OD IS MO/ APPROPRIATE 9 A SITU,N ": ! SELL] A4S RELATIVELY LL VALUE 6! GDS4 ,! GRT] ! VALUE-A4$ 6! GDS 0! FUNC;NS P]=M$ 0! SELL]1 ! M DI6ICULT X W 2 6DET]M9E AN APPROPRIATE RESALE M>G94 ,? IS ESPECI,Y TRUE 9 A SITU,N ": ! SELL] 3TRIBUTES 6! CRE,N OR MA9T5.E ( AN 9TANGI# PROP]TY1 S* Z A M>KET+ 9TANGI#1 9 XS ACTIVITIES4 #GE4 ,RESALE PRICE ME?OD EXAMPLE3 ,CANCO 4TRIBUTES WIDGETS 9 ,CANADA = XS ,UNIT$ ,/ATES P>5T1 ,USCO4 ,SALESCO1 A ,CANADIAN -PANY #CF ,"P #C E#G OP]AT+ AT >M'S L5G? 6,USCO1 4TRIBUTES GADGETS1 A PRODUCT SIMIL> 6WIDGETS1 9 ,CANADA = ,USCO4 ,! KEY FUNC;NAL DI6];ES1 O!R ?AN ! M9OR DI6];ES 9 PRODUCT1 2T ! 3TROLL$ TRANSAC;NS &! UNCONTROLL$ TRANSAC;NS >E3 --,USCO BE>S ! W>RANTY RISK 9 ! UNCONTROLL$ TRANSAC;N & ,CANCO BE>S ! W>RANTY RISK 9 ! CASE (! 3TROLL$ TRANSAC;N2 & --,USCO PROVIDES SAMPLES & PROMO;NAL MAT]IALS 6,SALESCO FREE ( CO/ :ILE ,CANCO PRODUCES XS [N SAMPLES & PROMO;NAL MAT]IALS & BE>S ! RELAT$ CO/S4 --------------------------------------#H ,! WIDGET & GADGET M>KETS >E SIMIL> 9 ,CANADA4 ,SALESCO E>NS A -MIS.N ( #AE@3P ( GADGET SALES NET ( 4C.TS & ALL[.ES4 #CG ,"P #C A#H ,CALCUL,N ( SALES -MIS.N3 ,CANCO'S NET SALES ( WIDGETS 6>M'S L5G? "PIES """""""""""""""""""""""" 4#D1JJJ ,>M'S L5G? SALES -MIS.N RATE BAS$ ON ,USCO AGREE;T """"""""""""""""""""""" #AE@3P ,>M'S L5G? SALES -MIS.N BAS$ ON ,USCO AGREE;T """""""""" 4#FJJ ,ADJU/;TS = FUNC;NAL & RISK DI6];ES3 ,PROMO;NAL CO/S """""""""" 4#AJ ,W>RANTY CO/S """""""""""" 4#BB ,TOTAL ADJU/;TS """"""""""""""""""" 4#CB ,ADJU/$ SALES -MIS.N """"""""""""" 4#FCB ,CALCUL,N ( TRANSF] ,CANCO'S NET SALES ( WIDGETS 6>M'S L5G? "PIES """""""""""""""""""""""" 4#D1JJJ ,LESS ADJU/$ SALES -MIS.N """""""" 4#FCB ,TRANSF] PRICE """"""""""""""""" 4#C1CFH #CH ,CO/ PLUS ME?OD B#H #GF4 ,! CO/ PLUS ME?OD 2G9S )! CO/S 9CURR$ 0A SUPPLI] (A PRODUCT OR S]VICE PROVID$ 6AN NON->M'S L5G? 5T]PRISE1 &A -P>A# GROSS M>K-UP IS !N A4$ 6^? CO/S4 ,? -P>A# GROSS M>K-UP IS DET]M9$ 9 TWO WAYS1 0REF];E TO3 --! CO/ PLUS M>K-UP E>N$ 0A MEMB] (! GR\P 9 -P>A# UNCONTROLL$ TRANSAC;NS 79T]NAL -P>A#72 OR --! CO/ PLUS M>K-UP E>N$ 0AN >M'S L5G? 5T]PRISE 9 -P>A# UNCONTROLL$ TRANSAC;NS 7EXT]NAL -P>A#74 #GG4 ,9 EI CASE1 ! RETURNS US$ 6DET]M9E AN >M'S L5G? M>K-UP M/ 2 ^? E>N$ 0P]SONS P]=M+ SIMIL> FUNC;NS & PREF]ABLY SELL+ SIMIL> GDS 6>M'S L5G? "PIES4 #GH4 ,": ! TRANSAC;NS >E N -P>A# 9 ALL WAYS &! DI6];ES H A MAT]IAL E6ECT ON PRICE1 TAXPAY]S M/ MAKE ADJU/;TS 6ELIM9ATE ! E6ECT ( ^? DI6];ES1 S* Z DI6];ES IN3 #CI ,"P #C C#H --! RELATIVE E6ICI5CY (! SUPPLI]2 & --ANY ADVANTAGE T ! ACTIV;Y CR1TES =! GR\P4 #GI4 ,! M -P>A# ! FUNC;NS1 RISKS & ASSETS1 ! M LIKELY X IS T ! CO/ PLUS ME?OD W PRODUCE AN APPROPRIATE E/IMATE ( AN >M'S L5G? RESULT4 #HJ4 ,9 G5]AL1 = PURPOSES ( APPLY+ A CO/-BAS$ ME?OD1 CO/S >E DIVID$ 96?REE CATEGORIES3 7#A7 .DIRECT .CO/S S* Z RAW MAT]IALS2 7#B7 .9DIRECT .CO/S S* Z REPAIR & MA9T5.E : MAY 2 ALLOCAT$ AM;G S"EAL PRODUCTS2 & 7#C7 .OP]AT+ .EXP5SES S* Z SELL+1 G5]AL1 & ADM9I/RATIVE EXP5SES4 #HA4 ,! CO/ PLUS ME?OD USES M>G9S CALCULAT$ AF DIRECT & 9DIRECT CO/S ( PRODUC;N4 ,9 -P>ISON1 NET M>G9 ME?ODS --S* Z ! TRANSAC;NAL NET M>G9 ME?OD 7,,TNMM7 4CUSS$ 9 ,SEC;N ;,B ( ? ,"P-- USE M>G9S CALCULAT$ AF DIRECT1 9DIRECT1 & OP]AT+ EXP5SES4 ,= PURPOSES ( CALCULAT+ ! CO/ BASE =! NET #DJ ,"P #C D#H M>G9 ME?ODS1 OP]AT+ EXP5SES USU,Y EXCLUDE 9T]E/ EXP5SE & TAXES4 #HB4 ,PROP]LY DET]M9+ CO/ "U ! CO/ PLUS ME?OD IS IMPORTANT4 ,CO/ IS USU,Y CALCULAT$ 9 A3ORD.E ) A3.T+ PR9CIPLES T >E G5],Y A3EPT$ = T "PICUL> 9DU/RY 9 ! C.TRY ": ! GDS >E PRODUC$4 #HC4 ,H["E1 X IS MO/ IMPORTANT T ! CO/ BASE (! TRANSAC;N (! TE/$ "PY 6: A M>K-UP IS 6BE APPLI$ 2 CALCULAT$ 9 ! SAME MANN] Z--& REFLECTS SIMIL> FUNC;NS1 RISKS1 & ASSETS Z--! CO/ BASE (! -P>A# TRANSAC;NS4 ,": CO/ IS N A3URATELY DET]M9$ 9 ! SAME MANN]1 BO? ! M>K-UP 7: IS A P]C5TAGE ( CO/7 &! TRANSF] PRICE 7: IS ! TOTAL (! CO/ &! M>K-UP7 W 2 MIS/AT$4 ,= EXAMPLE1 IF ! -P>A# "PY 9CLUDES A "PICUL> ITEM Z AN OP]AT+ EXP5SE1 :ILE ! TE/$ "PY 9CLUDES ! ITEM 9 XS CO/ ( GDS SOLD1 ! CO/ BASE (! -P>A# M/ 2 ADJU/$ 69CLUDE ! ITEM4 #DA ,"P #C E#H #HD4 ,CO/ PLUS ME?OD EXAMPLE3 ,CANCO1 A ,CANADIAN -PANY1 MANUFACTURES SPECIALIZ$ /AMP+ EQUIP;T = >M'S L5G? "PIES 9 ! MANUFACTUR+ 9DU/RY US+ DESIGNS SUPPLI$ 6!M 0! >M'S L5G? "PIES4 ,CANCO R1LIZES XS CO/S PLUS A M>K-UP ( #AJ@3P ON ? CU/OM MANUFACTUR+4 ,"U ! >M'S L5G? AGREE;TS1 .CO/S >E DEF9$ Z ! SUM ( DIRECT CO/S 7I4E41 LAB\R & MAT]IALS7 PLUS #EJ@3P (! DIRECT CO/S4 ,! A4I;NAL #EJ@3P ( DIRECT CO/S IS 9T5D$ 6APPROXIMATE 9DIRECT CO/S1 9CLUD+ OV]H1D4 ,CANCO AL MANUFACTURES /AMP+ MA*9ES = XS ,UNIT$ ,/ATES SUBSIDI>Y1 ,USCO1 US+ DESIGNS SUPPLI$ 0,USCO4 ,"U ! ,USCO AGREE;T1 .CO/S >E DEF9$ Z ! SUM (! DIRECT CO/S PLUS ! ACTUAL 9DIRECT CO/S1 9CLUD+ OV]H1D4 ,! OBJECTIVE ( ? EXAMPLE IS 6ILLU/RATE T ! CO/ BASE (! TE/$ "PY &! -P>A# TRANSAC;N M/ 2 EXPRESS$ 9 EQUIVAL5T T]MS4 ,"!=E1 = PURPOSES (! #DB ,"P #C F#H EXAMPLE1 X IS ASSUM$ T ! TRANSAC;NS 2T ,CANCO &! >M'S L5G? "PIES >E FUNC;N,Y -P>A# 6! TRANSAC;NS 2T ,CANCO & ,USCO4 ,NORM,Y "! WD 2 FUNC;NAL DI6];ES1 S* Z DI6];ES 9 M>KET+ ACTIVITIES1 : %D 2 GIV5 --------------------------------------#I 3SID],N 9 ! DET]M9,N ( AN >M'S L5G? M>K-UP4 ,CANCO HAS CALCULAT$ XS 9DIRECT CO/S & HAS ALLOCAT$ ^? CO/S 6! V>I\S PROJECTS BAS$ ON ! DIRECT LAB\R H\RS *>G$ 6EA* PROJECT4 ,BAS$ ON ,CANCO'S CALCUL,NS1 ! ACTUAL 9DIRECT CO/S1 9CLUD+ OV]H1D1 6BE *>G$ 6EA* PROJECT EQUAL #DE@3P (! DIRECT CO/S4 ,! CO/ BASE (! -P>A# TRANSAC;NS M/ 2 RE/AT$ 6DET]M9E ! APPROPRIATE M>K-UP4 ,! TRANSF] PRICE IS CALCULAT$ Z FOLL[S3 #DC ,"P #C A#I ,CALCUL,N ( M>K-UP "U ! >M'S L5G? AGREE;TS3 ,DIRECT CO/S """"""""""""""""""" 4#A1JJJ ,9DIRECT CO/S 7#EJ@3P MULTIPLI$ 04#A1JJJ7 """""""""""""""""""""" 4#EJJ ,TOTAL CO/S """""""""""""""""""" 4#A1EJJ ,M>K-UP #AJ@3P """"""""""""""""""" 4#AEJ ,PRICE """"""""""""""""""""""""" 4#A1FEJ ,CALCUL,N ( M>K-UP "U ! >M'S L5G? AGREE;TS US+ RE/AT$ CO/S3 ,DIRECT CO/S """"""""""""""""""" 4#A1JJJ ,9DIRECT CO/S 7#DE@3P MULTIPLI$ 04#A1JJJ7 """""""""""""""""""""" 4#DEJ ,TOTAL CO/S """""""""""""""""""" 4#A1DEJ ,PRICE E/ABLI%$ ABV """""""""""" 4#A1FEJ ,M>K-UP BAS$ ON RE/AT$ CO/S 74#A1FEJ UNUS 4#A1DEJ7 """"""""" 4#BJJ ,GROSS M>K-UP BAS$ ON RE/AT$ CO/S 74#BJJ DIVID$ 04#A1DEJ7 #AC.H@3P #DD ,"P #C B#I ,CALCUL,N (! >M'S L5G? TRANSF] PRICE3 ,CANCO'S DIRECT CO/S RELAT$ 6,USCO 3TRACT """""""""""""""""" 4#IJJ ,ADD3 ,9DIRECT CO/S 7#DE@3P MULTIPLI$ 04#IJJ7 """""""""""""""""""""""" 4#DJE ,M>K-UP 7#AC.H@3P MULTIPLI$ BY 74#IJJ PLUS #DJE77 """"""""""""" 4#AHJ ,TRANSF] PRICE """"""""""""""""" 4#A1DHE #HE4 ,! ,,OECD ,GUIDEL9ES PROVIDE ANO!R EXAMPLE1 9 P>AGRAPH #B.CG1 ": ! -P>A# >M'S L5G? "PY L1SES XS BUSI;S ASSETS :ILE ! TE/$ "PY [NS XS BUSI;S ASSETS4 ,! EXAMPLE HIA# )\T ! APPROPRIATE ADJU/;T 6! CO/ BASE4 #HF4 ,! APPLIC,N (! CO/ PLUS ME?OD AL REQUIRES C>E;L 3SID],N (! RELATIVE E6ICI5CIES (! "PIES 2+ -P>$4 ,AN ANALYSIS ( E6ICI5CIES 9CLUDES A 3SID],N (! DI6];ES IN3 #DE ,"P #C C#I --CO/ /RUCTURES 7S* Z ! AGE (! PLANT & EQUIP;T72 --BUSI;S EXP]I;E 7S* Z />T-UP V]SUS MATURE BUSI;SES72 & --MANAGE;T E6ICI5CY4 #HG4 ,": MAT]IAL DI6];ES >E ID5TIFI$1 ! RELIABIL;Y (! -P>A#S MAY 2 A6ECT$4 ,MAT]IAL DI6];ES 2T ! CAPITAL 9T5S;Y (! TE/$ "PY & AN >M'S L5G? "PY (T5 9DICATE MAT]IAL DI6];ES 9 ! TRANSAC;NS = : ADJU/;TS _C 2 MADE4 #HH4 ,= PURPOSES ( APPLY+ ! CO/-BAS$ TRANSF] PRIC+ ME?ODS1 ITEMS S* Z DEPRECI,N & O!R 9DIRECT *>GES >E USU,Y CALCULAT$ 9 A3ORD.E ) A3.T+ PR9CIPLES T >E G5],Y A3EPT$ = T "PICUL> 9DU/RY4 ,"!=E1 AM.TS S* Z DEPRECI,N OR F9ANCIAL REPORT+ PURPOSES--& N AM.TS S* Z CAPITAL CO/ ALL[.E1 DET]M9$ SOLELY = CALCULAT+ A TAXPAY]'S TAXA# 9COME-->E1 9 G5]AL1 RELEVANT = PURPOSES ( E/ABLI%+ ! APPROPRIATE CO/ BASE "U ! CO/ PLUS ME?OD4 #DF ,"P #C D#I #HI4 ,! CO/ PLUS & RESALE PRICE ME?ODS >E APPLI$ 6ONLY "O "PY 7! TE/$ "PY7 (! GR\P "PICIPAT+ 9 ! TRANSAC;N4 ,G5],Y1 ! M -PLEX ! FUNC;NS P]=M$1 ! ASSETS US$ &! RISKS ASSUM$1 ! M DI6ICULT X IS 6F9D -P>A# DATA 6APPLY ^! ME?ODS4 ,"!=E1 ! CO/ PLUS & RESALE PRICE ME?ODS G5],Y PRODUCE ! MO/ RELIA# RESULTS ":3 --! FUNC;NS P]=M$ 0! TE/$ "PY >E ! L1/ -PLEX2 & --! TE/$ "PY DOES N 3TRIBUTE VALUA# OR UNIQUE 9TANGI# ASSETS4 ,= EXAMPLE1 ,=EIGN ,CO4 3DUCTS RESE>* & DEVELOP;T1 & MANUFACTURES & SELLS1 A "PICUL> -PUT] PRODUCT 96XS HOME M>KET4 ,CANCO1 A ,CANADIAN =EIGN A6ILIATE ( ,=EIGN ,CO41 ON ! O!R H&1 MANUFACTURES ONLY "O -PON5T (! -PUT] PRODUCT & SELLS ALL ! -PON5TS X PRODUCES 6,=EIGN ,CO4 ,! -PON5T IS DEVELOP$ 0,=EIGN ,CO4 ,2C ,=EIGN ,CO4 DEVELOPS & [NS BO? ! MANUFACTUR+ & M>KET+ 9TANGI#S1 X W G5],Y 2 M DI6ICULT 6F9D -P>A# #DG ,"P #C E#I DATA 6APPLY ! CO/ PLUS & RESALE PRICE ME?ODS 6,=EIGN ,CO4'S MANUFACTUR+ & SALES ACTIVITIES ?AN X WD 2 6F9D -P>A# DATA 6APPLY ! CO/ PLUS ME?OD 6,CANCO'S MANUFACTUR+ ACTIVITIES4 ,CANCO WD G5],Y 2 ! TE/$ "PY 9 ? SC5>IO4 ,B4 ,TRANSAC;NAL ,PR(IT ,ME?ODS #IJ4 ,TRADI;NAL TRANSAC;N ME?ODS >E ! MO/ RELIA# M1NS ( E/ABLI%+ >M'S L5G? PRICES OR ALLOC,NS4 ,H["E1 ! -PLEX;Y ( MOD]N BUSI;S SITU,NS MAY MAKE X DI6ICULT 6APPLY ^! ME?ODS4 ,": ! 9=M,N AVAILA# ON -P>A# TRANSAC;NS IS N DETAIL$ 5 6ALL[ = ADJU/;TS NEC 6A*IEVE -P>ABIL;Y 9 ! APPLIC,N (A TRADI;NAL -------------------------------------#AJ TRANSAC;N ME?OD1 TAXPAY]S MAY H 63SID] TRANSAC;NAL PR(IT ME?ODS4 #IA4 ,H["E1 ! TRANSAC;NAL PR(IT ME?ODS %D N 2 APPLI$ SIMPLY 2C (! DI6ICULTIES 9 OBTA9+ OR ADJU/+ 9=M,N ON #DH ,"P #C A#AJ -P>A# TRANSAC;NS1 = PURPOSES ( APPLY+ ! TRADI;NAL TRANSAC;N ME?ODS4 ,! SAME FACTORS T L$ 6! 3CLU.N T X IS N POSSI# 6APPLY A TRADI;NAL TRANSAC;N ME?OD M/ 2 3SID]$ :5 EVALUAT+ ! RELIABIL;Y (A TRANSAC;NAL PR(IT ME?OD4 #IB4 ,! ,,OECD ,GUIDEL9ES 5DORSE ! USE ( TWO TRANSAC;NAL PR(IT ME?ODS3 --! PR(IT SPLIT ME?OD2 & --TRANSAC;NAL NET M>G9 ME?OD 7,,TNMM74 #IC4 ,! KEY DI6];E 2T ! PR(IT SPLIT ME?OD &! ,,TNMM IS T ! PR(IT SPLIT ME?OD IS APPLI$ 6ALL MEMB]S 9VOLV$ 9 ! 3TROLL$ TRANSAC;N1 ":AS ! ,,TNMM IS APPLI$ 6ONLY "O MEMB]4 #ID4 ,! M UNC]TA9TY ASSOCIAT$ )! -P>ABIL;Y ANALYSIS1 ! M LIKELY X IS T A "O-SID$ ANALYSIS1 S* Z ! ,,TNMM1 W PRODUCE AN 9APPROPRIATE RESULT4 ,Z )! CO/ PLUS & RESALE PRICE ME?ODS1 ! ,,TNMM IS LESS LIKELY 6PRODUCE RELIA# RESULTS ": ! TE/$ "PY 3TRIBUTES 6VALUA# OR UNIQUE 9TANGI# ASSETS4 ,": UNC]TA9TY EXI/S ) -P>ABIL;Y1 X #DI ,"P #C B#AJ MAY 2 APPROPRIATE 6USE A PR(IT SPLIT ME?OD 63FIRM ! RESULTS OBTA9$4 #IE4 ,9 ! ,DE"P;T'S EXP]I;E1 X IS DI6ICULT 6F9D EXACT -P>A#S = VALUA# OR UNIQUE 9TANGI# ASSETS4 ,FUR!RMORE1 0_! NATURE1 ^! 9TANGI#S >E (T5 DI6ICULT 6VALUE1 MAK+ X A *ALL5GE 6CALCULATE ADJU/;TS 6A3.T =! IMPACT (! 9TANGI#4 ,"!=E1 ! ,DE"P;T'S VIEW IS T ! ,,TNMM IS SELDOM ! RECOMM5D$ APPROA* = 3TROLL$ TRANSAC;NS 9VOLV+ VALUA# OR UNIQUE 9TANGI# ASSETS4 ,PR(IT SPLIT ME?OD #IF4 ,"U ! PR(IT SPLIT ME?OD3 --,! .F/ ./EP IS 6..DET]M9E ! TOTAL .PR(IT E>N$ 0! "PIES F A 3TROLL$ TRANSAC;N4 ,! PR(IT SPLIT ME?OD ALLOCATES ! TOTAL 9TEGRAT$ PR(ITS RELAT$ 6A 3TROLL$ TRANSAC;N1 N ! TOTAL PR(ITS (! GR\P Z A :OLE4 ,! PR(IT 6BE SPLIT IS G5],Y ! OP]AT+ PR(IT1 2F ! DEDUC;N ( 9T]E/ & #EJ ,"P #C C#AJ TAXES4 ,9 "S CASES1 X MAY 2 APPROPRIATE 6SPLIT ! GROSS PR(IT4 --,! .SECOND ./EP IS 6..SPLIT ! PR(IT 2T ! ."PIES BAS$ ON ! RELATIVE VALUE ( _! 3TRIBU;NS 6! NON->M'S L5G? TRANSAC;NS1 3SID]+ ! FUNC;NS P]=M$1 ! ASSETS US$1 &! RISKS ASSUM$ 0EA* NON->M'S L5G? "PY1 9 REL,N 6:AT >M'S L5G? "PIES WD H RCVD4 #IG4 ,! PR(IT SPLIT ME?OD MAY 2 APPLI$ ":3 --! OP],NS ( TWO OR M NON->M'S L5G? "PIES >E HIABIL;Y ) UNCONTROLL$ TRANSAC;NS 6APPLY A "O-SID$ ME?OD4 #IH4 ,DUE 6! -PLEX;Y ( MULTIN,NAL OP],NS1 "O MEMB] (! MULTIN,NAL GR\P IS SELDOM 5TITL$ 6! TOTAL RETURN ATTRIBUTA# 6! VALUA# OR UNIQUE ASSETS1 S* Z 9TANGI#S4 #EA ,"P #C D#AJ ,= EXAMPLE1 AL? "O MEMB] (A MULTIN,NAL GR\P (T5 DEVELOPS A PRODUCT 9TANGI#1 ANO!R MEMB] (! GR\P MAY EXP5D 3SID]A# EF=T 9 DEVELOP+ A M>KET+ 9TANGI# 9 A SPECIFIC GEOGRAPHIC LOC,N4 #II4 ,AL1 >M'S L5G? "PIES WD N USU,Y 9CUR A4I;NAL CO/S & RISKS 6OBTA9 ! "RS 6USE 9TANGI# PROP]TIES UN.S !Y EXPECT$ 6%>E 9 ! POT5TIAL PR(ITS4 ,:5 9TANGI#S >E PRES5T & NO QUAL;Y -P>A# DATA >E AVAILA# 6APPLY ! "O-SID$ ME?ODS 7I4E41 CO/ PLUS ME?OD1 RESALE PRICE ME?OD1 ! ,,TNMM71 TAXPAY]S %D 3SID] ! USE (A PR(IT SPLIT ME?OD4 #AJJ4 ,! SECOND /EP (! PR(IT SPLIT ME?OD C 2 APPLI$ 9 NUM]\S WAYS1 9CLUD+3 --SPLITT+ PR(ITS BAS$ ON A RESIDUAL ANALYSIS2 & --RELY+ 5TIRELY ON A 3TRIBU;N ANALYSIS4 #AJA4 ,FOLL[+ ! DET]M9,N (! TOTAL PR(IT 6BE SPLIT 9 ! F/ /EP (! PR(IT SPLIT1 A RESIDUAL PR(IT SPLIT IS P]=M$ 9 TWO #EB ,"P #C E#AJ /AGES4 ,! /AGES C 2 APPLI$ 9 NUM]\S WAYS1 = EXAMPLE3 --,/AGE #A3 ,! ALLOC,N (A RETURN 6EA* "PY =! R1DILY ID5TIFIA# FUNC;NS 7E4G41 MANUFACTUR+ OR 4TRIBU;N7 IS BAS$ ON R\T9E RETURNS E/ABLI%$ F -P>A# DATA4 ,! RETURNS 6^! FUNC;NS W1 G5],Y1 N A3.T =! RETURN ATTRIBUTA# 6VALUA# OR UNIQUE 9TANGI# PROP]TY US$ OR DEVELOP$ 0! "PIES4 ,! CALCUL,N ( ^! R\T9E RETURNS IS USU,Y CALCULAT$ 0APPLY+ ! TRADI;NAL TRANSAC;N ME?ODS1 AL? X MAY AL 9VOLVE ! APPLIC,N (! ,,TNMM4 --,/AGE #B3 ,! RETURN ATTRIBUTA# 6! 9TANGI# PROP]TY IS E/ABLI%$ 0ALLOCAT+ ! RESIDUAL PR(IT 7OR LOSS7 2T ! "PIES BAS$ ON ! RELATIVE 3TRIBU;NS (! "PIES1 GIV+ 3SID],N 6ANY 9=M,N AVAILA# T 9DICATES H[ >M'S L5G? "PIES WD DIVIDE ! PR(IT OR LOSS 9 SIMIL> CIRCUM/.ES4 #AJB4 ,RESIDUAL PR(IT SPLIT ME?OD EXAMPLE3 #EC ,"P #C F#AJ ,CANCO1 A ,CANADIAN -PANY1 HAS DEVELOP$ & MANUFACTURES A UNIQUE -PUT] *IP4 ,! *IP IS 3SID]$ 6BE AN 9NOVATIVE TE*NOLOGICAL ADV.E4 ,USCO1 A ,UNIT$ ,/ATES SUBSIDI>Y ( ,CANCO1 HAS DEVELOP$ & MANUFACTURES A -PUT] : 9CORPORATES ! NEW *IP & TE*NOLOGY -------------------------------------#AA DEVELOP$ 0,USCO XF4 ,! SU3ESS (! -PUT] IS ATTRIBUTA# 6BO? -PANIES =! DESIGN (! -PUT] &! -PUT] *IP4 ,CANCO SUPPLIES ,USCO )! -PUT] *IPS = ASSEMBLY 9 ! -PUT]S4 ,USCO MANUFACTURES ! -PUT]S & SELLS ! -PUT]S 6AN >M'S L5G? 4TRIBUTOR4 ,9 LIA#S ) SIMIL> 9TANGI# ASSETS4 ,2C !Y 7 UNA# 6E/ABLI% A RELIA# DEGREE ( -P>ABIL;Y1 ! GR\P 0 UNA# 6APPLY ! TRADI;NAL TRANSAC;N ME?ODS OR ! ,,TNMM4 ,H["E1 RELIA# DATA >E AVAILA# ON *IP & #ED ,"P #C A#AA -PUT] MANUFACTUR]S )\T 9NOVATIVE 9TANGI# PROP]TY1 & !Y E>N A RETURN ( #AJ@3P ON _! MANUFACTUR+ CO/S 7EXCLUD+ PUR*ASES74 ,! TOTAL PR(ITS ATTRIBUTA# 6-PUT] & *IPS >E CALCULAT$ Z FOLL[S3 ,SALES 6! >M'S L5G? 4TRIBUTOR """""""""""""""""""" 4#A1JJJ ,DEDUCT ,CANCO'S MANUFACTUR+ CO/ 4#BJJ ,USCO'S MANUFACTUR+ CO/S 4#CJJ ,TOTAL MANUFACTUR+ CO/S =! GR\P """""""""""""""""""""""" 4#EJJ ,GROSS M>G9 """""""""""""""""""""" 4#EJJ ,DEDUCT ,CANCO'S DEVELOP;T CO/S "" 4#AJJ ,USCO'S DEVELOP;T CO/S """ 4#EJ ,CANCO'S OP]AT+ CO/S """"" 4#EJ ,USCO'S OP]AT+ CO/S """""" 4#AJJ ,SUBTOTAL """""""""""""""""""""""" 4#CJJ ,NET PR(IT """"""""""""""""""""""" 4#BJJ #EE ,"P #C B#AA ,CANCO'S RETURN 6MANUFACTUR+ 7#BJJ MULTIPLI$ 0#AJ@3P7 """"" 4#BJ ,USCO'S RETURN 6MANUFACTUR+ 7#CJJ MULTIPLI$ 0#AJ@3P7 """"" 4#CJ ,SUBTOTAL """"""""""""""""""""""""" 4#EJ ,RESIDUAL PR(IT ATTRIBUTA# 6DEVELOP;T """""""""" 4#AEJ ,6SIMPLIFY ? EXAMPLE1 X IS ASSUM$ T ! CURR5T *IP & -PUT] DEVELOP;T CO/S A3URATELY REFLECT EA* (! "PICIPANTS RELATIVE 3TRIBU;N 6! -PUT]'S TE*NOLOGICAL ADVANTAGE4 ,! SPLIT (! RESIDUAL PR(IT %D 3SID] ! B5EFITS OV] ! 5TIRE EXPECT$ LIFE (! TE*NOLOGY1 : WD USU,Y G 2Y ! CURR5T YE>4 ,H["E1 GIV5 ! =EGO+ ASSUMP;N1 ! RESIDUAL PR(IT 9 ? EXAMPLE WD 2 SPLIT Z FOLL[S3 #EF ,"P #C C#AA ,BAS$ ON PROPOR;NATE DEVELOP;T CO/S3 ,CANCO'S %>E ( RESIDUAL PR(IT ,7#AJJ DIVID$ BY 7#AJJ PLUS #EJ77' MULTIPLI$ 04#AEJ """""""" 4#AJJ ,USCO'S %>E ( RESIDUAL PR(IT ,7#EJ DIVID$ BY 7#AJJ PLUS #EJ77' MULTIPLI$ 04#AEJ """"""""" 4#EJ ,CANCO'S TRANSF] PRICE IS CALCULAT$ Z FOLL[S3 ,MANUFACTUR+ CO/ """"""""""""""""" 4#BJJ ,DEVELOP;T CO/S """""""""""""""""" 4#AJJ ,OP]AT+ CO/S """""""""""""""""""""" 4#EJ ,R\T9E #AJ@3P RETURN ON MANUFACTUR+ CO/S """""""""""""""" 4#BJ ,%>E ( RESIDUAL PR(IT """""""""""" 4#AJJ ,TRANSF] PRICE """"""""""""""""""" 4#DGJ #AJC4 ,": ! PR(IT IS SPLIT BAS$ ON ! RELATIVE ASSETS (! "PIES1 M]ELY PROVID+ EA* "PY )! SAME RETURN ON XS RESPECTIVE ASSETS IS USU,Y N A3EPTA#4 ,! ME?ODOLOGY US$ %D RECOGNIZE T DI6]5T TYPES ( ASSETS H DI6]5T #EG ,"P #C D#AA EXPECT$ RATES ( RETURN1 BAS$ ON _! LIQUID;Y & RISK4 ,= EXAMPLE1 "W+ CAPITAL WD USU,Y EXPECT 6E>N A %ORT-T]M F9ANC+ RATE ( RETURN4 ,H["E1 FIX$ ASSETS--S* Z PROP]TY 7R1L E/ATE71 PLANT & EQUIP;T WD USU,Y EXPECT 6E>N A L;G-T]M RATE -M5SURATE )! RISKS ASSUM$4 #AJD4 ,AN ALT]NATIVE WAY 6APPLY ! PR(IT SPLIT ME?OD1 AL SU7E/$ 0! ,,OECD1 IS 6RELY 5TIRELY ON A 3TRIBU;N ANALYSIS4 ,! TOTAL PR(IT E>N$ 0! "PIES F A 3TROLL$ TRANSAC;N IS DIVID$1 BAS$ ON ! RELATIVE 3TRIBU;NS (! "PIES4 #AJE4 ,9 ! ,DE"P;T'S EXP]I;E1 ! RELATIVE 3TRIBU;NS >E (T5 DI6ICULT 6QUANTIFY4 ,"!=E1 ! ,DE"P;T RECOMM5DS ! USE (! RESIDUAL PR(IT SPLIT 9 MO/ CASES ": ! PR(IT SPLIT ME?OD IS APPROPRIATE4 ,! USE ( -P>A# DATA 6ALLOCATE A POR;N (! TOTAL PR(IT 9 ,/AGE #A (! SECOND /EP #EH ,"P #C E#AA (! RESIDUAL PR(IT SPLIT W G5],Y IMPROVE ! RELIABIL;Y (! PR(IT SPLIT4 ,TRANSAC;NAL NET M>G9 ME?OD 7,,TNMM7 #AJF4 ,! ,,TNMM3 --COMP>ES ! NET PR(IT M>G9 (A TAXPAY] >IS+ F A NON->M'S L5G? TRANSAC;N )! NET PR(IT M>G9S R1LIZ$ 0>M'S L5G? "PIES F SIMIL> TRANSAC;NS2 & --EXAM9ES ! NET PR(IT M>G9 RELATIVE 6AN APPROPRIATE BASE S* Z CO/S1 SALES OR ASSETS4 #AJG4 ,? DI6]S F ! CO/ PLUS & RESALE PRICE ME?ODS T -P>E GROSS PR(IT M>G9S4 ,H["E1 ! ,,TNMM REQUIRES A LEVEL ( -P>ABIL;Y SIMIL> 6T REQUIR$ =! APPLIC,N (! CO/ PLUS & RESALE PRICE ME?ODS4 ,": ! RELEVANT 9=M,N EXI/S AT ! GROSS -------------------------------------#AB M>G9 LEVEL1 TAXPAY]S %D APPLY ! CO/ PLUS OR RESALE PRICE ME?OD4 #EI ,"P #C A#AB #AJH4 ,2C ! ,,TNMM IS A "O-SID$ ME?OD1 X IS USU,Y APPLI$ 6! L1/ -PLEX "PY T DOES N 3TRIBUTE 6VALUA# OR UNIQUE 9TANGI# ASSETS4 ,S9CE ,,TNMM M1SURES ! REL,N%IP 2T NET PR(IT & AN APPROPRIATE BASE S* Z SALES1 CO/S1 OR ASSETS EMPLOY$1 X IS IMPORTANT 6*OOSE ! APPROPRIATE BASE TAK+ 96A3.T ! NATURE (! BUSI;S ACTIV;Y4 ,! APPROPRIATE BASE T PR(ITS %D 2 M1SUR$ AG/ W DEP5D ON ! FACTS & CIRCUM/.ES ( EA* CASE4 ,= EXAMPLE3 ,CANCO1 A ,CANADIAN -PANY1 PRODUCES A LIQUID PRODUCT = XF & ?REE =EIGN SUBSIDI>IES ( XS ,SWISS P>5T4 ,CANCO &! =EIGN SUBSIDI>IES [N ! "RS 6! LIQUID PRODUCT =MULAE = SALES 6_! RESPECTIVE C.TRIES4 ,AL? ,CANCO HAS NO 9T]NAL -P>A# TRANSAC;NS1 X HAS BE5 A# 6LOCATE DATA RELAT+ 6AN >M'S L5G? "PY :O P]=MS CU/OM =MUL,NS = >M'S L5G? PUR*AS]S US+ =MULAE SUPPLI$ 6!M 0^? PUR*AS]S4 ,GIV5 ! ABS;E ( VALUA# OR UNIQUE 9TANGI#S1 ,CANCO HAS BE5 #FJ ,"P #C B#AB A#1 AF ! APPROPRIATE FUNC;NAL ANALYSIS1 6V]IFY T ! CU/OM =MULATOR IS -P>A#4 ,H["E1 ,CANCO _C OBTA9 ! RELEVANT 9=M,N AT ! GROSS M>G9 LEVEL4 ,"!=E1 X IS UNA# 6APPLY ! CO/ PLUS ME?OD4 ,! >M'S L5G? =MULATOR R1LIZES A NET M>K-UP ( #AJ@3P ON ! CU/OM =MUL,NS4 ,! TRANSF] PRICE (! LIQUID PRODUCT IS CALCULAT$ Z FOLL[S3 ,CANCO'S CO/ ( GDS SOLD """""""" 4#A1JJJ ,CANCO'S OP]AT+ EXP5SES """""""""" 4#CJJ ,TOTAL CO/S """""""""""""""""""" 4#A1CJJ ,ADD3 ,NET M>K-UP 7#AJ@3P MULTIPLI$ 04#A1CJJ7 """""""""""""""""""""" 4#ACJ ,TRANSF] PRICE """"""""""""""""" 4#A1DCJ #AJI4 ,! ,,TNMM RELIES ON A -P>ISON ( NET M>G9S4 ,"!=E1 A /&>D ( -P>ABIL;Y SIMIL> 6T NE$$ =! CO/ PLUS & RESALE PRICE ME?ODS M/ 2 MET IF ! ,,TNMM IS 6PRODUCE A RELIA# E/IMATE ( AN #FA ,"P #C C#AB >M'S L5G? RESULT4 ,APPLIC,N (! ,,TNMM1 L ! CO/ PLUS & RESALE ME?ODS1 REQUIRES A C>E;L EVALU,N (! FUNC;NAL DI6];ES4 #AAJ4 ,": DI6];ES 2T ! TAXPAY]'S SITU,N & T ( "O OR M -P>A# 5TITIES EXI/ & C 2 DET]M9$1 TAXPAY]S M/ MAKE APPROPRIATE ADJU/;TS 65SURE A HI< /&>D ( -P>ABIL;Y4 #AAA4 ,"S DI6];ES MAY N L5D !MVS 6SIMPLE OR RELIA# ADJU/;TS 7E4G41 DI6];ES 9 ! AGE & PRODUCTIV;Y ( PLANT & EQUIP;T1 MANAGE;T ABILITIES OR PHILOSOPHIES1 &! BUSI;S EXP]I;E (! RESPECTIVE 5TITIES74 ,! FAILURE 6A3.T = ^! DI6];ES OR 6MAKE SATISFACTORY ADJU/;TS MAY PRECLUDE ! ME?OD F PRODUC+ A RELIA# E/IMATE ( AN >M'S L5G? RESULT4 ,A7REGAT$ DATA -PIL$ ) RESPECT 6! PR(ITS )9 A "PICUL> 9DU/RY R>ELY SATISFY ! /&>DS ( -P>ABIL;Y REQUIR$ 6IMPLE;T ! ,,TNMM4 #AAB4 ,TYPIC,Y1 ! ,,TNMM IS APPLI$ 6ONLY "O (! "PIES 9VOLV$ 9 ! TRANSAC;N4 ,H["E1 ! ,,TNMM C 2 APPLI$ 6M ?AN "O MEMB] (A GR\P ": X IS US$ #FB ,"P #C D#AB 6E/ABLI% R\T9E RETURNS 9 ,/AGE #A (! SECOND /EP (! RESIDUAL PR(IT SPLIT4 #AAC4 ,": ! ,,TNMM IS APPLI$ 6ONLY "O MEMB] (A GR\P1 X MAY FAIL 63SID] ! RELATIVE 3TRIBU;NS ( ALL ! MEMB]S 6! PR(ITS (! GR\P4 ,X C PRODUCE RESULTS T D N A3ORD )! >M'S L5G? PR9CIPLE1 ": ! TE/$ "PY 3TRIBUTES 6VALUA# OR UNIQUE 9TANGI# ASSETS4 ,! RESULT MAY 2 T A LEVEL ( PR(IT IS ATTRIBUT$ 6"O MEMB] (! GR\P1 L1V+ ! O!R MEMB]S (! GR\P ) UNR1LI/IC %>ES (! GR\P'S TOTAL PR(ITS4 #AAD4 ,! ,,TNMM IS A NET M>G9 ME?OD4 ,! ,DE"P;T AC"KL$GES T ! ,,TNMM &! -P>A# PR(ITS ME?OD 7,,CPM71 PUT =W>D 0O!R TAX AU?ORITIES Z A TRANSF] PRIC+ ME?ODOLOGY1 BO? BASE ! E/ABLI%;T ( >M'S L5G? 3DI;NS ON AN ANALYSIS ( NET M>G9 RATIOS4 ,H["E1 ! ,DE"P;T IS AL AW>E T1 9 _M CASES1 ! PRACTICAL APPLIC,N (! ,,CPM DOES N MEET ! DEGREE ( -P>ABIL;Y REQUIR$ 0! ,,OECD ,GUIDEL9ES =! APPLIC,N (! ,,TNMM4 #FC ,"P #C E#AB #AAE4 ,,CPM W 2 A3EPTA# 9 ,CANADA1 SUBJECT 6! NATURAL HI]>*Y ( ME?ODS 74CUSS$ 9 ,"P #C ( ? CIRCUL>71 & 6! EXT5T T XS APPLIC,N 3=MS 6! -P>ABIL;Y /&>DS SET =? =! ,,TNMM 9 ! ,,OECD ,GUIDEL9ES4 #AAF4 ,"S TAX JURISDIC;NS PROMOTE ! USE ( /ATI/ICAL M1SURES 65H.E ! RELIABIL;Y (! -P>A# DATA 3SID]$ 9 PRODUC+ A RANGE4 ,Z PREVI\SLY M5;N$ 9 P>AGRAPH #CD ( ? CIRCUL>1 ! ,DE"P;T DOES N 5DORSE ! USE ( /ATI/ICAL M1SURES : >E -MONLY US$ 9 ! APPLIC,N (! ,,TNMM4 ,9/1D1 ! ,DE"P;T RELIES ON ! FACTS & CIRCUM/.ES (! CASE 6DET]M9E A RANGE1 OR ! "PICUL> PO9T 9 A RANGE1 T IS ! MO/ RELIA# E/IMATE ( AN >M'S L5G? PRICE OR ALLOC,N4 #AAG4 ,! ,DE"P;T RECOMM5DS T TAXPAY]S FOLL[ A F\R-/EP APPROA* 9 _! SE>* = EXT]NAL -P>A# TRANSAC;NS "U ! ,,TNMM4 ,! /EPS >E Z FOLL[S3 --,/EP #A3 ,SELECT 5TITIES ) SIMIL> 9DU/RY CLASSIFIC,NS 6! TE/$ #FD ,"P #C F#AB "PY1 TAK+ 963SID],N T CLOS] -P>ABIL;Y ( PRODUCTS & FUNC;NS PRODUCES M RELIA# RESULTS4 --,/EP #B3 ,SCRE5 ! 5TITIES ID5TIFI$ 9 A SIMIL> 9DU/RY CLASSIFIC,N 6DET]M9E IF ! 5TITIES H BASIC,Y -P>A# TRANSAC;NS Z ! TE/$ "PY1 BAS$ ON ! -------------------------------------#AC F9ANCIAL 9=M,N AVAILA#4 .,= .EXAMPLE1 ": ! TE/$ "PY IS A MANUFACTUR] ) LIMIT$ 9TANGI#S1 ! RATIO ( RESE>* & DEVELOP;T EXP5SES 6SALES MAY HIA# TRANSAC;NS4 ,AL? 5TITIES >E REPORT$ 9 A SIMIL> 9DU/RY CODE1 ! N>RATIVE DESCRIP;NS W (T5 REV1L T ! SELECT$ 5TITIES' TRANSAC;NS >E N -P>A# 6^? (! TE/$ "PY4 #FE ,"P #C A#AC --,/EP #D3 ,MAT]IAL DI6];ES MAY A6ECT ! -P>ABIL;Y ( ANY (! 5TITIES' TRANSAC;NS SELECT$ 9 ,/EP #A & N SCRE5$ \ 0! TE/+ 9 ,/EP #B OR ,/EP #C4 ,9 ^! SITU,NS1 MAKE ! APPROPRIATE ADJU/;TS ": POSSI# & ELIM9ATE ANY 5TITIES = : NEC ADJU/;TS _C R1SONABLY 2 MADE4 #AAH4 ,TAXPAY]S %D APPLY ! ,,TNMM ON A TRANSAC;NAL BASIS & N ON A -PANY-WIDE BASIS4 ,H["E1 TRANSAC;NS MAY 2 -B9$ AF 3SID]+ ! FACTORS DESCRIB$ 9 P>AGRAPH #CI ( ? CIRCUL>4 #AAI4 ,"! MAY 2 SITU,NS ": A TAXPAY] HAS FOLL[$ ! HI]>*Y ( ME?ODS & IS UNA# 6E/ABLI% AN APPROPRIATE DEGREE ( -P>ABIL;Y BAS$ ON ! FACTS & CIRCUM/.ES4 ,9 S* A SITU,N1 ! TAXPAY] MAY H 63SID] US+ A ME?OD1 O!R ?AN A RECOMM5D$ ME?OD1 T W SATISFY ! >M'S L5G? PR9CIPLE4 ,": ANO!R ME?OD IS US$1 X %D REFLECT AN ATTEMPT 6PRES5T ! #FF ,"P #C B#AC "PICUL> TRANSAC;N 9 T]MS ( :AT WD H TRANSPIR$ 9 AN >M'S L5G? REL,N%IP4 ,"P #D4 ,QUALIFY+ ,CO/ ,3TRIBU;N ,>RANGE;TS 7,,QCCA7 #ABJ4 ,SUBSEC;N #BDG7#A7 (! ,ACT DEF9ES A QUALIFY+ CO/ 3TRIBU;N >RANGE;T 7,,QCCA74 ,9 G5]AL T]MS1 A ,,QCCA IS AN >RANGE;T ":BY TWO OR M "PIES %>E ! CO/S & RISKS ( PRODUC+1 DEVELOP+1 OR ACQUIR+ ANY PROP]TY1 OR ACQUIR+ OR P]=M+ ANY S]VICES1 9 PROPOR;N 6! B5EFITS : EA* "PICIPANT IS R1SONABLY EXPECT$ 6DERIVE F ! PROP]TY OR S]VICES Z A RESULT (! >RANGE;T4 #ABA4 ,EA* "PICIPANT'S EXPECT$ B5EFIT F A ,,QCCA1 =! PURPOSES ( APPOR;N+ ! CO/S1 3SI/S (! B5EFITS T ! "PICIPANT W DERIVE F EXPLOIT+ ! RESULTS (! ,,QCCA1 & N F ! ACTUAL ACTIVITIES (! ,,QCCA4 ,IF ! ,,QCCA DEVELOPS PROP]TY S* Z AN 9TANGI#1 EA* "PICIPANT 9 A ,,QCCA IS N REQUIR$ 6BE A LEGAL [N] (! #FG ,"P #D C#AC PROP]TY1 B EA* "PICIPANT M/ 5JOY SUB/ANTI,Y SIMIL> "RS1 B5EFITS1 & PRIVILEGES Z A LEGAL [N] 7E6ECTIVE OR B5EFICIAL [N]%IP74 #ABB4 ,FREQU5TLY1 A ,,QCCA IS 3CLUD$ =! JO9T DEVELOP;T ( 9TANGI# PROP]TY1 ) EA* "PICIPANT 2+ ASSIGN$ AN 9T]E/ 9 ! DEVELOP$ PROP]TY4 ,H["E1 "PICIPANTS MAY AL POOL _! RES\RCES 6ACQUIRE ANY TYPE ( C5TRALIZ$ S]VICES 7E4G41 A3.T+1 -PUT] TE*NICAL SUPPORT1 HUMAN RES\RCES1 OR ! DEVELOP;T ( AN ADV]TIS+ CAMPAIGN -MON 6! "PICIPANTS' M>KETS74 #ABC4 ,=A ,,QCCA 6SATISFY ! >M'S L5G? PR9CIPLE1 EA* "PICIPANT'S 3TRIBU;N M/ 2 3SI/5T ) T : AN >M'S L5G? "PY WD H AGRE$ 63TRIBUTE "U -P>A# CIRCUM/.ES GIV5 ! B5EFIT X WD H R1SONABLY EXPECT$ 6DERIVE F ! >RANGE;T4 ,"!=E1 ONLY P]SONS :O C R1SONABLY 2 EXPECT$ 6DERIVE A B5EFIT F ! RESULTS (A ,,QCCA C 2 3SID]$ "PICIPANTS 9 T ,,QCCA4 ,! REQUIRE;T ( AN EXPECT$ B5EFIT DOES N #FH ,"P #D D#AC IMPOSE A 3DI;N T ! SUBJECT ACTIV;Y 9 FACT 2 SU3ESS;L4 #ABD4 ,"U ! >M'S L5G? PR9CIPLE1 ! VALUE ( EA* "PICIPANT'S 3TRIBU;N 6A ,,QCCA %D 2 3SI/5T )! VALUE T >M'S L5G? "PIES WD H ASSIGN$ 6T 3TRIBU;N 9 -P>A# CIRCUM/.ES4 ,! APPLIC,N (! >M'S L5G? PR9CIPLE WD TAKE 96A3.T1 AM;G O!R ?+S1 ! 3TRACTUAL T]MS & ECONOMIC CIRCUM/.ES "PICUL> 6! ,,QCCA4 #ABE4 ,": A "PICIPANT 6A ,,QCCA1 OR A NON->M'S L5G? "PY 6A "PICIPANT 6A ,,QCCA1 P]=MS ALL OR "P (! ,,QCCA ACTIVITIES1 X WD EXPECT 6BE -P5SAT$ ON AN >M'S L5G? BASIS4 ,! >M'S L5G? -P5S,N WD 2 DET]M9$ "U ! G5]AL PR9CIPLES 4CUSS$ 9 ? CIRCUL>1 9CLUD+ 3SID],N ( FUNC;NS P]=M$1 ASSETS US$1 & RISKS ASSUM$4 ,? -P5S,N C 9CLUDE EXPECT$ B5EFITS F ! ,,QCCA4 #ABF4 ,! >M'S L5G? PR9CIPLE AL APPLIES 6CAPITAL 3TRIBU;NS ( TANGI# OR 9TANGI# ASSETS 6A ,,QCCA4 #FI ,"P #D E#AC ,= EXAMPLE1 ": TWO "PIES 9T5D 6BE EQUAL "PICIPANTS 9 A ,,QCCA1 )! F/ "PY 3TRIBUT+ PROP]TY )A FAIR M>KET VALUE WELL 9 EXCESS ( XS CO/1 &! O!R 3TRIBUT+ CA%1 CO/ WD N 2 AN APPROPRIATE M1SURE (! F/ "PY'S 3TRIBU;N4 #ABG4 ,"U A ,,QCCA1 A "PICIPANT'S %>E (! OV]ALL 3TRIBU;NS 6! ,,QCCA M/ 2 9 PROPOR;N 6! %>E (! OV]ALL B5EFITS X EXPECTS 6DERIVE F ! >RANGE;T4 #ABH4 .,9 .!ORY1 EA* "PICIPANT'S %>E (! B5EFITS MAY 2 DET]M9$ 0DIRECTLY E/IMAT+3 --! ANTICIPAT$ A4I;NAL 9COME T EA* "PICIPANT IS EXPECT$ 6G5]ATE Z A RESULT ( XS "PICIP,N 9 ! >RANGE;T2 OR --! ANTICIPAT$ CO/ SAV+S !Y EXPECT 6GA9 Z A RESULT ( XS "PICIP,N 9 ! >RANGE;T4 -------------------------------------#AD #ABI4 .,9 .PRACTICE1 69DIRECTLY E/IMATE ! A4I;NAL 9COME 6BE DERIV$ F ! #GJ ,"P #D A#AD >RANGE;T1 ! "PICIPANTS MAY USE ALLOC,N KEYS S* Z3 --SALES2 --UNITS US$1 PRODUC$ OR SOLD2 --GROSS OR OP]AT+ PR(IT2 --NUMB] ( EMPLOYEES2 OR --CAPITAL 9VE/$4 #ACJ4 ,A TAXPAY] %D *OOSE ALLOC,N KEYS1 TAK+ 96A3.T3 --! NATURE (! ,,QCCA2 & --! REL,N%IP 2T ! ALLOC,N KEY &! EXPECT$ B5EFITS4 ,= EXAMPLE1 PROJECT$ SALES (! 5D- PRODUCTS MAY N 2 AN APPROPRIATE ALLOC,N KEY ":3 --A "PICUL> -PON5T IS DEVELOP$ )9 A ,,QCCA2 & --! -PON5T IS US$ 0! "PICIPANTS 9 A V>IETY ( 5D-PRODUCTS T DI6] SIGNIFICANTLY 9 PRICE4 ,! DI6];ES 9 ! PRICES (! 5D-PRODUCTS W 4TORT ! REL,N%IP 2T ! CO/ 6! "PICIPANTS & _! EXPECT$ B5EFITS4 ,9 ? CASE1 ! NUMB] ( -PON5TS US$ 0EA* #GA ,"P #D B#AD "PICIPANT MAY 2 A BETT] M1SURE (! EXPECT$ B5EFITS 6! "PICIPANTS4 #ACA4 ,= TAX PURPOSES1 ! 3TRIBU;NS 0A "PICIPANT 6A ,,QCCA W 2 TR1T$ Z ?\< !Y 7 MADE \TSIDE ! SCOPE (! ,,QCCA 6C>RY ON ! ACTIVITIES T >E ! SUBJECT (! ,,QCCA 7E4G41 6P]=M SCI5TIFIC RESE>* & EXP]I;TAL DEVELOP;T 7,,SR&,,ED7 OR PUR*ASE A CAPITAL ASSET74 ,! DEDUCTIBIL;Y (! CO/S ALLOCAT$ 6A "PICUL> TAXPAY] IS DET]M9$ 9 A3ORD.E )! ,ACT4 ,! FACT T A *>GE =! CO/S IS XF JU/IFI$ DOES N AUTOMATIC,Y MAKE ! CO/S DEDUCTI# "U ! ,ACT4 #ACB4 ,": A "PICIPANT'S 3TRIBU;N 6A ,,QCCA IS N 3SI/5T ) XS %>E (! EXPECT$ B5EFIT1 A BALANC+ PAY;T MAY 2 REQUIR$ 2T ! "PICIPANTS 6ADJU/ _! RESPECTIVE 3TRIBU;NS4 #ACC4 ,= TAX PURPOSES1 ! BALANC+ PAY;T %D 2 TR1T$ Z AN A4I;N 6! CO/ (! PAY] & Z A REIMBURSE;T ( CO/S 6! RECIPI5T4 ,": ! BALANC+ PAY;T IS M ?AN ! #GB ,"P #D C#AD RECIPI5T'S EXP5DITURES OR CO/S1 ! EXCESS W 2 TR1T$ Z A TAXA# AM.T4 #ACD4 ,! CO/S SUBJECT 6ALLOC,N WD 2 NET ( O!R ,,QCCA RECEIPTS1 7I4E41 ROYALTIES F LIC5SES OR PROCE$S F ! SALE ( RESE>* ASSETS74 ,CO/S SUBJECT 6ALLOC,N = ,,SR&,,ED C>RI$ \ 9 ,CANADA "U A ,,QCCA W 2 CALCULAT$ 2F DEDUCT+ ANY TAX 9C5TIVES 7I4E41 ,,SR&,,ED TAX CR$ITS7 E>N$ ) RESPECT 6! ,,SR&,,ED1 B AF DEDUCT+ SUBSIDIES GRANT$ 0A GOV]N;T1 UN.S "! IS EVID;E T >M'S L5G? "PIES WD H D"O O!RWISE4 #ACE4 ,"U ! >M'S L5G? PR9CIPLE1 "PICIPANTS 9 A ,,QCCA T TRANSF] A "P OR ALL ( _! 9T]E/S 9 ! RESULTS ( PRIOR ,,QCCA ACTIVITIES 7S* Z 9TANGI# PROP]TY1 "W IN-PROGRESS1 OR ! K OBTA9$ F PA/ ,,QCCA ACTIVITIES7 6A NEW "PICIPANT %D RCV >M'S L5G? -P5S,N F ! NEW "PICIPANT = T PROP]TY 7A BUY-IN PAY;T74 ,! AM.T (A BUY-IN PAY;T %D 2 DET]M9$1 BAS$ ON ! PRICE AN >M'S L5G? "PY WD H PD =! "RS OBTA9$ 0! NEW #GC ,"P #D D#AD "PICIPANT4 ,? DET]M9,N WD TAKE 96A3.T ! PROPOR;NATE %>E (! OV]ALL EXPECT$ B5EFIT 6BE RCVD F ! ,,QCCA4 #ACF4 ,= TAX PURPOSES1 A BUY-IN PAY;T W 2 TR1T$ Z IF ! PAY;T 0 MADE \TSIDE ! ,,QCCA = ACQUIR+ ! 9T]E/ 9 ! "RS 2+ OBTA9$ 7E4G41 AN 9T]E/ 9 9TANGI# PROP]TY ALR DEVELOP$ 0! ,,QCCA1 "W 9 PROGRESS1 OR ! K OBTA9$ F PA/ ,,QCCA ACTIVITIES74 #ACG4 ,SIMIL> ISSUES >ISE :5 A "PICIPANT 6A ,,QCCA 4POSES ( "P OR ALL ( XS 9T]E/ 9 A ,,QCCA4 ,! E6ECTIVE TRANSF] ( PROP]TY 9T]E/S %D 2 -P5SAT$ AC 6! >M'S L5G? PR9CIPLE 7A BUY-\ PAY;T74 ,H["E1 TAXPAY]S %D EX]CISE C>E 9 ! EV5T ( EI A BUY-IN OR BUY-\ 2C ! V NATURE ( ANY 9TANGI#S 9 A ,,QCCA MAY (T5 MAKE ! BUY-IN OR BUY-\ VALU,N DI6ICULT4 ,? VALU,N IS "PICUL>LY DI6ICULT ": ! 9TANGI#S DEVELOP$ 0A ,,QCCA >E VALUA# OR UNIQUE4 #ACH4 ,= TAX PURPOSES1 A BUY-\ PAY;T W 2 TR1T$ Z IF ! PAY;T 0 MADE \TSIDE #GD ,"P #D E#AD ! ,,QCCA =! 4POSAL ( PRE-EXI/+ 9T]E/S 7E4G41 AN 9T]E/ 9 9TANGI# PROP]TY ALR DEVELOP$ 0! ,,QCCA1 "W 9 PROGRESS1 OR ! K OBTA9$ F PA/ ,,QCCA ACTIVITIES74 ,"P #E4 ,9TANGI# ,PROP]TY #ACI4 ,APPLY+ ! >M'S L5G? PR9CIPLE 6TRANSF]S ( 9TANGI# PROP]TY RAISES SPECIFIC ISSUES ASSOCIAT$ )! DI6ICULTY & UNC]TA9TY "S"TS 5C.T]$ ) ATTRIBUT+ AN >M'S L5G? VALUE 6S* TRANSF]S4 ,9 MO/ CASES1 BO? ! SUPPLI] &! RECIPI5T %>E ! RISKS &! B5EFITS ASSOCIAT$ ) US+ AN 9TANGI#4 #ADJ4 ,>M'S L5G? PRIC+ =! TRANSF] ( 9TANGI# PROP]TY M/ TAKE 96A3.T ! P]SPECTIVE ( BO? ! TRANSF]OR (! PROP]TY &! TRANSF]EE4 ,A TRANSF]OR ATTEMPTS 6RECOV] ! CO/S ASSOCIAT$ ) DEVELOP+ AN 9TANGI# & 6E>N A R1SONA# RETURN4 ,H["E1 6! RECIPI5T1 ! VALUE ( AN 9TANGI# IS BAS$ SOLELY ON ! EXPECT$ B5EFITS 7A4I;NAL PR(ITS7 T ! #GE ,"P #E F#AD 9TANGI# WD G5]ATE4 ,! OV]ALL EXPECT$ B5EFIT 6! RECIPI5T IS USU,Y A KEY 3SID],N 9 DET]M9+ ! TRANSF] PRICE ( AN 9TANGI# 6BO? "PIES4 ,= EXAMPLE1 9 MO/ CASES1 AN >M'S L5G? EXCLUSIVE 4TRIBUTOR (A PRODUCT WD ONLY AGREE 6PAY A HI<] -------------------------------------#AE ROYALTY =! USE (A HIE HI<] ?AN ^? T ! 4TRIBUTOR WD H EXPECT$ IF X _H 4TRIBUT$ A SIMIL> PRODUCT )\T ! BR&-"N 9TANGI#4 #ADA4 ,! V NATURE ( 9TANGI# PROP]TY MAY (T5 MAKE XS VALU,N DI6ICULT4 ,! 9H]5T RISK (T5 ASSOCIAT$ ) 9TANGI# PROP]TY MAY PRODUCE SIGNIFICANT FLUCTU,NS 9 _! VALUE4 ,9 A4I;N1 9TANGI# PROP]TY MAY 2 ( SIGNIFICANT VALUE EV5 ?\< X HAS NO OR LL BOOK-VALUE 9 ! TAXPAY]'S BAL.E %EET4 #GF ,"P #E A#AE #ADB4 ,X MAY 2 V DI6ICULT 6F9D 9TANGI#S : >E -P>A#4 ,9 APPLY+ ! >M'S L5G? PR9CIPLE 6TRANSAC;NS 9VOLV+ 9TANGI#S1 ! MO/ APPROPRIATE TRANSF] PRIC+ ME?OD W 2 ! "O T PROVIDES ! HIABIL;Y 2T TRANSAC;NS4 #ADC4 ,": -P>A# DATA ON AN 9TANGI# EXI/S1 ! MO/ APPROPRIATE TRANSAC;N ME?OD IS A TRADI;NAL "O 7I4E41 ,,CUP OR RESALE PRICE74 ,X MAY 2 POSSI# 6USE ! ,,CUP ME?OD 6DET]M9E AN >M'S L5G? PRICE =! SALE OR LIC5SE ( AN 9TANGI# PROP]TY 7S* Z A PAT5T1 A TRADEM>K1 OR "K-H[7 ": ! SAME OR A -P>A# 9TANGI# PROP]TY HAS BE5 SOLD OR LIC5S$ 6>M'S L5G? "PIES4 #ADD4 ,G5U9E (F]S F >M'S L5G? "PIES =! 9TANGI# MAY AL 2 TAK5 96A3.T4 ,H["E1 ": S* AN (F] DOES N RESULT 9 AN AGREE;T 2T ! "PIES1 TAXPAY]S %D AL 3SID] ! FACTORS L1D+ 6! REJEC;N (! (F]4 ,AN (F] MADE 0A POT5TIAL PUR*AS] MAY 2 REPRES5TATIVE (A PRICE T ! "PICUL> PUR*AS] 0 PREP>$ 6PAY4 #GG ,"P #E B#AE ,H["E1 X MAY N 2 REPRES5TATIVE (! PRICE T A V5DOR IS PREP>$ 6A3EPT4 #ADE4 ,TRADI;NAL TRANSAC;N ME?ODS OR ! ,,TNMM WD PROBABLY N 2 APPROPRIATE ": AN 9TANGI# PROP]TY IS HI* & DEVELOP;T 2C (! DI6ICULTY 9 F9D+ -P>A# 9=M,N4 ,FUR!RMORE1 6! EXT5T T EXCESS PR(ITS >E G5]AT$ 0A HIM'S L5G? "PIES WD 9SI/ ON 6PROTECT _! RESPECTIVE POSI;NS4 ,= EXAMPLE1 ": ! VALUE ( AN 9TANGI# IS UNC]TA91 "O NE$S 63SID] :E!R AN #GH ,"P #E C#AE >M'S L5G? TRANSF]OR WD P]MIT ! L;G-T]M EXPLOIT,N (! 9TANGI# 0AN >M'S L5G? "PY4 ,Z PROTEC;N1 AN >M'S L5G? TRANSF]OR MAY 9SI/ ON AN AGREE;T T3 --HAS A RELATIVELY %ORT T]M2 --9CLUDES A PRICE ADJU/;T CLAUSE2 OR --SETS V>IA# ROYALTY RATES TI$ 6PR(ITS4 ,IF ! EXPLOIT,N (! 9TANGI# PROVES HIE ( T F9ANCIAL SU3ESS4 ,SIMIL>LY1 AN >M'S L5G? TRANSF]EE1 WI%+ 6EXPLOIT AN 9TANGI# PROP]TY1 MAY N AGREE 6PAY L>GE AM.TS =! EXCLUSIVE USE (! PROP]TY =A L;G P]IOD ( "T1 IF ! VALUE (! 9TANGI# IS UNC]TA94 ,9 S* CIRCUM/.ES1 TRANSF]EES MAY NEGOTIATE A %ORT-T]M 3TRACT1 A PRICE ADJU/;T CLAUSE1 OR V>IA# ROYALTY RATES TI$ 6PR(ITS4 #GI ,"P #E D#AE #ADG4 ,": A ROYALTY RATE IS 2+ E/ABLI%$1 A TAXPAY] %D 3SID]3 --PREVAIL+ 9DU/RY RATES2 --T]MS (! AGREE;T1 9CLUD+ GEOGRAPHIC LIMIT,NS1 "T LIMIT,NS1 & EXCLUSIV;Y "RS2 --S+UL>;Y (! 9V5;N &! P]IOD = : X IS LIKELY 6REMA9 UNIQUE2 --TE*NICAL ASSI/.E1 TRADEM>KS1 & "K-H[ PROVID$ AL;G ) A3ESS 6ANY PAT5T2 --PR(ITS ANTICIPAT$ 0! LIC5SEE2 & --B5EFITS 6! LIC5SOR >IS+ F %>+ 9=M,N ON ! EXP]I;E (! LIC5SEE4 #ADH4 ,TAXPAY]S :O D N [N TRADEM>KS OR TRADE "NS "S"TS "UTAKE M>KET+ ACTIVITIES4 ,9 ^! 9/.ES1 ! ISSUE >ISES Z 6:E!R !Y %D %>E 9 ANY RETURN ATTRIBUTA# 6! M>KET+ 9TANGI#S4 ,4TRIBUTORS :O BE> ! CO/S ( M>KET+ ACTIVITIES WD USU,Y EXPECT 6%>E 9 ! RETURN F ! M>KET+ 9TANGI#S4 ,Z WELL1 4TRIBUTORS :O BE> M>KET+ CO/S 9 EXCESS ( ^? T AN >M'S L5G? 4TRIBUTOR ) SIMIL> "RS 6EXPLOIT ! 9TANGI# WD 9CUR1 #HJ ,"P #E E#AE WD EXPECT AN A4I;NAL RETURN F ! [N] (! TRADEM>K OR TRADE "N4 ,! ACTUAL M>KET+ ACTIVITIES (! 4TRIBUTOR OV] A NUMB] ( YE>S %D 2 GIV5 SIGNIFICANT WEIKET+ ACTIVITIES4 #ADI4 ,DESPITE ! DI6ICULTY 9 DET]M9+ A TRANSF] PRICE = 9TANGI#S1 US+ H9DSIM'S L5G? PR9CIPLE1 AN AGREE;T T IS1 9 SUB/.E1 ! SAME Z "O 96: >M'S L5G? "PIES WD H 5T]$1 WD N USU,Y 2 SUBJECT 6ADJU/;T 0A TAX ADM9I/R,N Z A RESULT ( SUBSEQU5T EV5TS4 ,"!=E1 X WD 2 9CONSI/5T )! >M'S L5G? PR9CIPLE =A TAX ADM9I/R,N 6REQUIRE1 OR A3EPT1 AN ADJU/;T SOLELY ON ! BASIS T 9COME /R1MS OR CO/ SAV+S DI6] F ^? 9ITI,Y E/IMAT$ 0! "PIES4 ,H["E1 ! ,DE"P;T MAY 3SID] FACTORS T A R1SONA# P]SON ) "S K (! -------------------------------------#AF 9DU/RY WD H TAK5 96A3.T AT ! "T ! VALU,N 0 PROJECT$4 #HA ,"P #E A#AF #AEJ4 ,Z \TL9$ 9 P>AGRAPH #DC ( ? CIRCUL>1 ! ,DE"P;T G5],Y A3EPTS BUSI;S TRANSAC;NS Z !Y >E /RUCTUR$ 0! "PIES4 ,H["E1 ! ,,OECD ,GUIDEL9ES ID5TIFY TWO TYPES ( SITU,NS ": ! RE"*IZ,N (A TRANSAC;N WD 2 3SID]$4 ,"O SITU,N ID5TIFI$ 0! ,,OECD IS A SALE "U A L;G- T]M 3TRACT1 =A LUMP SUM PAY;T1 ( UNLIMIT$ 5TITLE;T 69TANGI# PROP]TY >IS+ Z A RESULT ( FUTURE RESE>*4 #AEA4 ,! ,DE"P;T W REVIEW ANY L;G-T]M AGREE;TS 2T NON->M'S L5G? "PIES =! "R 6USE 9TANGI#S 65SURE T !Y >E 3SI/5T )! >M'S L5G? PR9CIPLE4 ,P>AGRAPH #BDG7#B77B7 PROVIDES = AN ADJU/;T ": ! ,DE"P;T DET]M9ES T3 --A L;G-T]M SALE ( 9TANGI# PROP]TY WD N H BE5 5T]$ 962T P]SONS D1L+ AT >M'S L5G?2 & --! SALE 0 N 5T]$ 96PRIM>ILY = BONA FIDE PURPOSES O!R ?AN 6OBTA9 A TAX B5EFIT4 ,= EXAMPLE1 X MAY 2 APPROPRIATE 9 S* A SITU,N =! ,DE"P;T 6MODIFY ! #HB ,"P #E B#AF AM.TS = PURPOSES (! ,ACT ON ! BASIS ( AN ALT]NATIVE TRANSAC;N ^: =M1 NATURE1 T]MS1 & 3DI;NS CORRESPOND 6:AT >M'S L5G? "PIES WD H AGRE$ TO--6REFLECT AN ONGO+ RESE>* AGREE;T4 ,"P #F4 ,9TRA-,GR\P ,S]VICES #AEB4 ,A WIDE V>IETY ( S]VICES >E (T5 PROVID$ 0"O MEMB] (A MULTIN,NAL GR\P 6O!R MEMB]S )9 ! GR\P4 ,^! 9TRA-GR\P S]VICES MAY 2 ( AN ADM9I/RATIVE1 TE*NICAL1 F9ANCIAL1 OR -M]CIAL NATURE4 #AEC4 ,! ,,OECD ,GUIDEL9ES ON PROVID+ 9TRA-GR\P S]VICES 9CLUDE A FRAME"W 6DET]M9E3 --:E!R A *>GE =A "PICUL> S]VICE IS JU/IFI$2 &1 IF S1 --H[ 6DET]M9E ! AM.T (! *>GE4 #AED4 ,"!=E1 9 APPLY+ ! >M'S L5G? PR9CIPLE 69TRA-GR\P S]VICES1 A TAXPAY] M/ F/ DET]M9E :E!R A SPECIFIC ACTIV;Y P]=M$ 0A MEMB] (! GR\P = ANO!R MEMB] IS A S]VICE = : A *>GE IS #HC ,"P #F C#AF JU/IFI$4 ,AN >M'S L5G? 5T;Y WD 2 WILL+ 6PAY = AN ACTIV;Y ONLY 6! EXT5T T ! ACTIV;Y 3F]S ON X A B5EFIT ( ECONOMIC OR -M]CIAL VALUE4 #AEE4 ,! TE/ 6DET]M9E IF A *>GE = AN ACTIV;Y IS JU/IFI$1 WD 9VOLVE ! FOLL[+ "Q3 ,WD ! 5T;Y = :OM ! ACTIV;Y IS 2+ P]=M$ .EI H BE5 WILL+ 6PAY =! ACTIV;Y IF P]=M$ 0AN >M'S L5G? 5T;Y .OR H P]=M$ ! ACTIV;Y XF8 ,": X WD N H BE5 R1SONA# 6EXPECT ! 5T;Y 6.EI PAY AN >M'S L5G? 5T;Y =! ACTIV;Y .OR 6P]=M X XF1 X IS UNLIKELY T ANY *>GE =! ACTIV;Y WD 2 JU/IFI$4 #AEF4 ,C]TA9 CO/S >E 9CURR$ =! SOLE B5EFIT ( %>EHOLD]S &1 "!=E1 %D N 2 *>G$ 6O!R MEMB]S (! GR\P4 ,= EXAMPLE1 AN >M'S L5G? CORPOR,N WD N BE> ! CO/S (A %>EHOLD]S MEET+ ( ANO!R CORPOR,N2 "!=E1 A SUBSIDI>Y WD N BE> ANY CO/S (A P>5T'S %>EHOLD]S MEET+4 #HD ,"P #F D#AF #AEG4 ,CO/S RELAT+ 6! LEGAL /RUCTURE OR ! G5]AL F9ANCIAL REPORT+ REQUIRE;TS (A "PICUL> GR\P MEMB] %D N 2 *>G$ 6ANO!R MEMB]4 ,C]TA9 O!R CO/S1 S* Z ^? 9VOLV$ 9 RAIS+ FUNDS =! ACQUISI;N ( AN 9T]E/ 9 A BUSI;S1 WD G5],Y N 2 ATTRIBUTA# 6ANO!R MEMB] (! GR\P4 ,H["E1 Z SU7E/$ 9 P>AGRAPH #G.AJ (! ,,OECD ,GUIDEL9ES1 IF ! FUNDS 7 RAIS$ ON 2HALF ( ANO!R MEMB] (! GR\P T US$ !M 6ACQUIRE A NEW -PANY1 X MAY 2 APPROPRIATE 6ATTRIBUTE ! CO/S 6T O!R GR\P MEMB]4 #AEH4 ,X WD 2 UNUSUAL =A GR\P MEMB] 69CUR A *>GE =A S]VICE P]=M$ 0ANO!R MEMB] (! GR\P IF T ACTIV;Y IS P]=M$ 0! MEMB] XF OR 0AN >M'S L5G? "PY ON ! MEMB]'S 2HALF4 ,9 "S CASES1 H["E1 "! MAY 2 A VALID BUSI;S R1SON = DUPLICAT+ A S]VICE4 ,= EXAMPLE1 AN >M'S L5G? "PY MAY3 --3T9UE 6OP]ATE AN EXI/+ -PUT] SY/EM1 =A BRIEF P]IOD1 3CURR5TLY )A NEW "O 6D1L ) UN=ESE5 DI6ICULTIES : #HE ,"P #F E#AF MAY >ISE DUR+ ! IMPLE;T,N (! NEW SY/EM2 OR1 --OBTA9 A SECOND LEGAL OP9ION 6SUPPLE;T AN 9T]NAL LEGAL REVIEW & OP9ION 9 ORD] 6REDUCE ! RISK ( ]ROR ON A "PICUL> ISSUE 7SEE ! ,,OECD ,GUIDEL9ES1 P>AGRAPH #G.AA74 ,9 EI ( ^! TWO CASES1 "! IS A VALID BUSI;S R1SON = DUPLICAT+ ! FUNC;N4 #AEI4 ,": A *>GE =A S]VICE IS JU/IFI$1 ! AM.T *>G$ %D 2 DET]M9$ 9 A3ORD.E )! >M'S L5G? PR9CIPLE4 ,! ,,OECD ,GUIDEL9ES /ATE T ! ISSUE M/ 2 3SID]$ F ! PO9T ( VIEW ( BO? ! SUPPLI] &! RECIPI5T (! S]VICE4 ,! >M'S L5G? *>GE IS N ONLY A FUNC;N (! PRICE AT : A SUPPLI] IS PREP>$ 6P]=M ! S]VICE 7OR ! CO/ ( PROVID+ ! S]VICE71 B AL A FUNC;N (! VALUE 6! RECIPI5T (! S]VICE4 ,"!=E1 ! DET]M9,N ( AN >M'S L5G? *>GE M/ TAKE 963SID],N ! AM.T T AN >M'S L5G? 5T;Y IS PREP>$ 6PAY = S* A S]VICE 9 -P>A# CIRCUM/.ES4 #HF ,"P #F F#AF #AFJ4 ,": A S]VICE IS R5D]$ 0>M'S L5G? "PIES OR ! S]VICE SUPPLI]1 Z "P ( XS ORD9>Y & RECURR+ ACTIVITIES1 R5D]S ! S]VICE = >M'S L5G? "PIES1 ! PRICE *>G$ 9 ^? CIRCUM/.ES IS A GD 9DIC,N (! >M'S L5G? PRICE4 ,?US1 ! ,,CUP ME?OD %D 2 -------------------------------------#AG US$1 ASSUM+ SU6ICI5T QUAL;Y DATA = XS APPLIC,N IS AVAILA#4 #AFA4 ,? PRESUMES T3 --! S]VICES >E SUB/ANTI,Y ! SAME 9 T]MS ( _! NATURE & QUAL;Y Z WELL Z ! QUANT;Y OR EXT5T 6: ^! S]VICES >E PROVID$2 --! M>KETS >E SIMIL>2 & --! S]VICES >E PROVID$ ON -P>A# T]MS4 #AFB4 ,": ! ,,CUP ME?OD _C 2 APPLI$1 ! TAXPAY] %D 3SID] ! CO/ PLUS ME?OD4 ,! CO/ PLUS ME?OD IS APPROPRIATE ":1 AF ! APPROPRIATE FUNC;NAL ANALYSIS1 ! TAXPAY] C V]IFY -P>ABIL;Y 79CLUD+ ! FUNC;NS P]=M$1 ! ASSETS US$1 &! RISKS ASSUM$7 ) UNCONTROLL$ TRANSAC;NS4 ,! TAXPAY] M/ 5SURE T ! CO/S 9CURR$ #HG ,"P #F A#AG 0! S]VICE SUPPLI] >E SUB/ANTI,Y ! SAME Z ^? 9CURR$ 9 ! -P>A# TRANSAC;NS4 ,IF N1 APPROPRIATE ADJU/;TS M/ 2 MADE4 #AFC4 ,>M'S L5G? S]VICE SUPPLI]S WD USU,Y EXPECT 6RECOV] _! CO/S PLUS AN ELE;T ( PR(IT4 ,H["E1 9 DET]M9+ AN >M'S L5G? *>GE = S]VICE1 "O M/ AL TAKE 96A3.T ! ECONOMIC ALT]NATIVES AVAILA# 6! RECIPI5T (! S]VICE4 ,(T51 ! PRICE ! RECIPI5T IS WILL+ 6PAY =! S]VICE DOES N EXCE$ ! CO/ ( SUPPLY 6! S]VICE SUPPLI]4 ,= EXAMPLE1 9 _M CASES1 ! S]VICES PROVID$ "? 9TRA-GR\P >RANGE;TS >E ADM9I/RATIVE OR ANCILL>Y 9 NATURE1 &! "PICIPANTS WD ONLY H BE5 PREP>$ 6C5TRALIZE ! ACTIV;Y IF !Y CD %>E 9 ! CO/ SAV+S4 ,CO/ MAY REPRES5T AN >M'S L5G? *>GE 9 S* SITU,NS4 #AFD4 ,DET]M9+ :E!R A M>K-UP IS APPROPRIATE &1 ": APPLICA#1 ! QUANTUM (! M>K-UP1 REQUIRES C>E;L 3SID],N ( FACTORS S* Z3 #HH ,"P #F B#AG --! NATURE (! ACTIV;Y2 --! SIGNIFIC.E (! ACTIV;Y 6! GR\P2 --! RELATIVE E6ICI5CY (! S]VICE SUPPLI]2 & --ANY ADVANTAGE T ! ACTIV;Y CR1TES =! GR\P4 ,= EXAMPLE1 ! RELATIVE E6ICI5CY ( >M'S L5G? S]VICE SUPPLI]S MAY N 2 -P>A# 6! 9TRA-GR\P S]VICES ": ! 9TRA-GR\P S]VICES >E (F]$ Z A 3V5I;E 6! GR\P & N Z AN ORD9>Y & RECURR5T ACTIV;Y4 #AFE4 ,Z 4CUSS$ 9 P>AGRAPH #G.CF (! ,,OECD ,GUIDEL9ES1 X IS IMPORTANT 64T+UI% 2T ! SITU,N (3 --A TAXPAY] :O R5D]S S]VICES =! O!R MEMB]S (A GR\P2 & --A TAXPAY] :O ACTS SOLELY Z AN AG5T ON 2HALF (! GR\P 6ACQUIRE S]VICES F AN >M'S L5G? "PY4 ,9 ! LATT] SITU,N1 ! >M'S L5G? -P5S,N WD 2 LIMIT$ 6REW>D+ ! AG5CY ROLE4 ,9 S* A CASE1 X WD N 2 APPROPRIATE 6DET]M9E AN >M'S L5G? *>GE 0REF]R+ 6A M>K-UP ON ! CO/ (! S]VICES #HI ,"P #F C#AG ACQUIR$ F AN >M'S L5G? "PY4 ,:E!R A TAXPAY] IS PROVID+ A S]VICE OR M]ELY ACT+ Z AN AG5T ON 2HALF (! GR\P IS A "Q ( FACT4 #AFF4 ,A *>GE = S]VICES C 2 DET]M9$ 0TWO ME?ODS3 --! .DIRECT .*>GE ME?OD2 & --! .9DIRECT .*>GE ME?OD4 #AFG4 ,"U ! .DIRECT .*>GE ME?OD1 A SPECIFIC *>GE IS E/ABLI%$ = EA* ID5TIFIA# S]VICE4 #AFH4 ,"U ! .9DIRECT .*>GE ME?OD1 AN ALLOC,N1 6A "PICUL> 5T;Y1 (! CO/ (A S]VICE PROVID$ 6M ?AN "O 5T;Y IS MADE 0REF]R+ 6A BASIS OR ALLOC,N KEY T 9DICATES ! %>E (! TOTAL VALUE (! S]VICE ATTRIBUTA# 6! "PICUL> 5T;Y4 #AFI4 ,! ,DE"P;T PREF]S ! DIRECT *>GE ME?OD OV] ! 9DIRECT *>GE ME?OD4 ,9 CASES ": ! S]VICES R5D]$ 0! TAXPAY] 6O!R MEMB]S (! GR\P3 -->E ! SAME OR SIMIL> Z ^? R5D]$ 6>M'S L5G? "PIES1 OR #IJ ,"P #F D#AG --C 2 R1SONABLY ID5TIFI$ & QUANTIFI$1 ! DIRECT *>GE ME?OD %D 2 US$4 #AGJ4 ,H["E1 9 "S SITU,NS1 A S]VICE HAS BE5 PROVID$ 6A NUMB] ( NON->M'S L5G? "PIES &! POR;N (! VALUE (! S]VICE DIRECTLY ATTRIBUTA# 6EA* (! "PIES _C 2 DET]M9$ 7E4G41 ": GLOBAL M>KET RESE>* IS 9T5D$ 6B5EFIT ALL ! NON->M'S L5G? 5TITIES74 ,9 ? CASE1 ! TAXPAY] C USE ! 9DIRECT *>GE ME?OD4 ,": AN 9DIRECT ALLOC,N IS US$1 X %D RESULT 9 A *>GE T IS -P>A# 6T : >M'S L5G? "PIES WD A3EPT4 #AGA4 ,:5 *OOS+ AN ALLOC,N KEY 7E4G41 SALES1 GROSS OR OP]AT+ PR(ITS1 UNITS US$/PRODUC$/SOLD1 NUMB] ( EMPLOYEES1 OR CAPITAL 9VE/$71 ! TAXPAY] %D 3SID] ! NATURE & USE MADE (! S]VICE4 ,= EXAMPLE1 IF ! S]VICES RELATE 6HUMAN RES\RCE ACTIVITIES1 S* Z ADM9I/]+ A GLOBAL EMPLOYEE B5EFIT PLAN1 ! PROPOR;NATE NUMB] ( EMPLOYEES #IA ,"P #F E#AG MAY 2 ! BE/ M1SURE (! B5EFIT 6EA* GR\P MEMB]4 ,"P #G4 ,P5ALTY--,R1SONA# ,EF=TS #AGB4 ,SUBSEC;N #BDG7#C7 (! ,ACT IMPOSES A P5ALTY EQUAL 6#AJ@3P (! NET RESULT ( C]TA9 ADJU/;TS MADE "U SUBSEC;N #BDG7#B7 (! ,ACT CALCULAT$ Z FOLL[S3 --,! TOTAL (! TRANSF] PRIC+ 9COME & CAPITAL ADJU/;TS 7UPW>D ADJU/;TS1 :E!R "! >E R1SONA# EF=TS OR N72 .M9US3 --! TOTAL ( TRANSF] PRIC+ 9COME & CAPITAL ADJU/;TS = : A TAXPAY] HAS MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? TRANSF] PRICES -------------------------------------#AH OR >M'S L5G? ALLOC,NS 7UPW>D ADJU/;TS = : "! >E R1SONA# EF=TS72 & --! TOTAL ( TRANSF] PRIC+ 9COME & CAPITAL SET(F ADJU/;TS = : A TAXPAY] HAS MADE R1SONA# EF=TS #IB ,"P #G A#AH 6DET]M9E & USE >M'S L5G? TRANSF] PRICES OR >M'S L5G? ALLOC,NS 7D[NW>D ADJU/;TS = : "! >E R1SONA# EF=TS74 #AGC4 ,IF ! TAXPAY] HAS N MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? PRICES OR ALLOC,NS1 SUBSEC;N #BDG7#C7 DOES N P]MIT A REDUC;N (! AM.T SUBJECT 6! P5ALTY4 #AGD4 ,! 3CEPT ( R1SONA# EF=TS IS AL 3TA9$ 9 ! DEF9I;N ( ,,QCCA F.D 9 SUBSEC;N #BDG7#A7 (! ,ACT4 ,A CO/-%>+ >RANGE;T W N 2 DEF9$ 6BE A ,,QCCA1 IF ! TAXPAY] DOES N MAKE R1SONA# EF=TS 6MAT* ! 3TRIBU;NS (! "PICIPANTS 6_! RESPECTIVE EXPECT$ B5EFITS4 ,TRANSF] PRIC+ ADJU/;TS MADE 6CO/ 3TRIBU;N >RANGE;TS >E A7REGAT$ ) O!R TRANSF] PRIC+ ADJU/;TS = PURPOSES (! P5ALTY CALCUL,N4 #AGE4 ,! P5ALTY W ONLY APPLY ": ! NET AM.T CALCULAT$ ABV EXCE$S ! LESS] ( 4#E1JJJ1JJJ & #AJ@3P (! TAXPAY]'S GROSS REV5UE =! YE>4 #IC ,"P #G B#AH #AGF4 ,6ILLU/RATE3 --.,,UT IS DEF9$ Z ! TOTAL ( ALL UPW>D ADJU/;TS 7:E!R ON A3.T ( 9COME OR CAPITAL7 "U SUBSEC;N #BDG7#B71 :E!R OR N ! TAXPAY] HAS MADE R1SONA# EF=TS 6-PLY )! >M'S L5G? PR9CIPLE4 --.,,UR IS DEF9$ Z ! TOTAL ( ALL UPW>D ADJU/;TS 7:E!R ON A3.T ( 9COME OR CAPITAL7 "U SUBSEC;N #BDG7#B71 : RELATE 6TRANSAC;NS = : ! TAXPAY] HAS MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? PRICES OR ALLOC,NS4 --.,,DR IS DEF9$ Z ! TOTAL ( ALL D[NW>D ADJU/;TS 7:E!R ON A3.T ( 9COME OR CAPITAL7 "U SUBSEC;N #BDG7#B7 ON TRANSAC;NS = : ! TAXPAY] HAS MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? PRICES OR ALLOC,NS4 ,P5ALTY ,?RE%OLD ,CALCUL,N3 ,! P5ALTY "U SUBSEC;N #BDG7#C7 APPLIES IF1 =A "PICUL> TAX,N YE>3 --7,,UT M9US ,,UR M9US ,,DR7 IS .GRT] ?AN 7! LESS] ( 4#E1JJJ1JJJ & #AJ@3P #ID ,"P #G C#AH (! TAXPAY]'S GROSS REV5UE = T "PICUL> TAX YE>74 ,IF N1 "! IS NO P5ALTY "U SUBSEC;N #BDG7#C74 ,IF S1 ! AM.T (! P5ALTY IS CALCULAT$ SEP>ATELY &! AM.T (! P5ALTY IS N REDUC$ 0! ?RE%OLD4 ,P5ALTY ,CALCUL,N3 --#AJ@3P MULTIPLI$ BY 7,,UT M9US ,,UR M9US ,,DR74 #AGG4 ,SUBSEC;N #BDG7#C7 (! ,ACT PRECLUDES APPLY+ ! P5ALTY UN.S ! NET AM.T ( ADJU/;TS EXCE$S ! SPECIFIC ?RE%OLD Z DESCRIB$ ABV4 ,! P5ALTY IS 9T5D$ 6BE A -PLI.E P5ALTY FOCUS+ ON ! EF=TS T A TAXPAY] MAKES 6DET]M9E AN >M'S L5G? PRICE & N SOLELY ON ! ULTIMATE A3URACY (! TRANSF] PRICES4 ,"!=E1 PROVID$ A TAXPAY] MAKES R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? PRICES OR ALLOC,NS1 ! TRANSF] PRIC+ P5ALTY DOES N APPLY4 #IE ,"P #G D#AH #AGH4 ,TAX S]VICES (FICES >E RESPONSI# = ID5TIFY+ TAXPAY]S :O MAY H FAIL$ 6MAKE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? PRICES Z "P (! NORMAL AUDIT REVIEW4 ,H["E1 ! ,DE"P;T RECOGNIZES ! IMPORT.E ( APPLY+ ! TRANSF] PRIC+ P5ALTY PROVI.NS 9 A FAIR & 3SI/5T MANN]4 ,?US1 .2F A P5ALTY IS ASSESS$1 TAX S]VICES (FICES W REF] ALL CASES 6! ,TRANSF] ,PRIC+ ,REVIEW ,-MITTEE = REVIEW4 #AGI4 ,! G5]AL DET]M9,N ( :E!R A TAXPAY] HAS MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? TRANSF] PRICES OR ALLOC,NS IS A "Q ( FACT4 ,! ,DE"P;T W 3SID] T TAXPAY]S H MADE R1SONA# EF=TS IF !Y H TAK5 ALL R1SONA# /EPS 65SURE T _! TRANSF] PRICES OR ALLOC,NS 3=M )! >M'S L5G? PR9CIPLE4 ,H["E1 9 A4I;N 6! G5]AL DET]M9,N1 TAXPAY]S M/ AL 3SID] ! PROVI.NS ( SUBSEC;N #BDG7#D7 : MAY DEEM T !Y H N MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? TRANSF] PRICES OR ALLOC,NS4 #IF ,"P #G E#AH #AHJ4 ,SUBSEC;N #BDG7#D7 (! ,ACT DEEMS A TAXPAY] N 6H MADE R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? TRANSF] PRICES OR ALLOC,NS UN.S ! TAXPAY] HAS PREP>$ OR OBTA9$ RECORDS OR DOCU;TS : PROVIDE A DESCRIP;N T IS -PLETE & A3URATE 9 ALL MAT]IAL RESPECTS (! ITEMS LI/$ 9 SUBP>AGRAPHS #BDG7#D77A77;I7 "? 7;VI7 (! ,ACT4 ,? DOCU;T,N M/ 2 PREP>$ OR OBTA9$ ON OR 2F ! TAXPAY]'S DOCU;T,N-DUE DATE =! TAX YE> OR FISCAL P]IOD 9 : A TRANSAC;N IS 5T]$ 9TO4 ,": A TRANSAC;N SPANS M ?AN "O TAX YE> OR FISCAL P]IOD1 ! DOCU;T,N M/ AL 2 UPDAT$ 6REFLECT ANY MAT]IAL *ANGES ON OR 2F ! DOCU;T,N-DUE DATE = T YE> OR P]IOD 9 : ! MAT]IAL *ANGE O3URS4 #AHA4 ,! TAXPAY] M/ PROVIDE ! RECORDS OR DOCU;TS SPECIFI$ 9 SUBSEC;N #BDG7#D7 6! ,DE"P;T )9 #C MON?S (! RECEIPT (A WRITT5 REQUE/ 6D S4 ,IF ! TAXPAY] DOES N PROVIDE ! DOCU;TS )9 ! #C MON?S1 ! TAXPAY] IS DEEM$ N 6H MADE #IG ,"P #G F#AH R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? TRANSF] PRICES OR ALLOC,NS = PURPOSES (! P5ALTY 9 SUBSEC;N #BDG7#C7 (! ,ACT4 #AHB4 ,SUBSEC;N #BDG7#D7 REQUIRES T A TAXPAY] M/ H RECORDS OR DOCU;TS T PROVIDE A -PLETE & A3URATE DESCRIP;N1 9 ALL MAT]IAL RESPECTS1 (! FOLL[+ ITEMS3 --,! PROP]TY OR S]VICES 6: ! TRANSAC;N RELATES4 --,! T]MS & 3DI;NS (! TRANSAC;N & _! REL,N%IP1 IF ANY1 6! T]MS & 3DI;NS ( EA* -------------------------------------#AI O!R TRANSAC;N 5T]$ 962T ! P]SONS OR "PN]%IPS 9VOLV$ 9 ! TRANSAC;N4 ,= EXAMPLE1 9 A R.D-TRIP TRANSAC;N 7I4E41 A TRANSAC;N ":BY A P>5T -PANY MANUFACTURES -PON5TS T >E ASSEM#D 96A F9I%$ PRODUCT 0A =EIGN SUBSIDI>Y1 &! F9I%$ PRODUCT IS SOLD 6! P>5T = 4TRIBU;N71 TAXPAY]S M/ #IH ,"P #G A#AI DOCU;T H[ ! T]MS & 3DI;NS ( EA* (! TRANSF]S RELATE 6EA* O!R4 --,! ID5T;Y (! P]SONS OR "PN]%IPS 9VOLV$ 9 ! TRANSAC;N1 & _! REL,N%IP AT ! "T ! TRANSAC;N 0 5T]$ 9TO4 --,! FUNC;NS P]=M$1 ! PROP]TY US$ OR 3TRIBUT$1 &! RISKS ASSUM$ 0! P]SONS OR "PN]%IPS 9VOLV$ 9 ! TRANSAC;N4 ,P>AGRAPHS #A.BJ "? #A.BG (! ,,OECD ,GUIDEL9ES DESCRIBE ! FUNC;NAL ANALYSIS PROCESS1 & P>AGRAPHS #E.BC & #E.BD (! ,,OECD ,GUIDEL9ES GIVE AN OV]VIEW (! DOCU;T,N REQUIR$ 6SUPPORT S* AN ANALYSIS4 --,! DATA & ME?ODS 3SID]$ &! ANALYSIS P]=M$ 6DET]M9E ! TRANSF] PRICES OR ! ALLOC,NS ( PR(ITS OR LOSSES OR 3TRIBU;NS 6CO/S1 Z ! CASE MAY BE1 =! TRANSAC;N4 ,? 9CLUDES3 --A DESCRIP;N (! -P>A# TRANSAC;NS 3SID]$ &( ^? US$ 9 APPLY+ ! PRIC+ ME?OD2 #II ,"P #G B#AI --AN ASSESS;T (! DEGREE ( -P>ABIL;Y ( S* TRANSAC;NS )! TAXPAY]'S TRANSAC;NS2 & --A DESCRIP;N ( ANY ADJU/;TS MADE 65H.E ! DEGREE ( -P>ABIL;Y4 ,": ! TAXPAY] 3SID]S M ?AN "O ME?OD1 ? AL 9CLUDES ! ANALYSIS P]=M$ US+ EA* ( ^? ME?ODS1 Z WELL Z ! ANALYSIS T L$ 6! SELEC;N (! *OS5 ME?OD4 --,! ASSUMP;NS1 /RATEGIES1 & POLICIES1 IF ANY1 T 9FLU;ED ! DET]M9,N (! TRANSF] PRICES OR ! ALLOC,NS ( PR(ITS OR LOSSES OR 3TRIBU;NS 6CO/S1 Z ! CASE MAY BE1 =! TRANSAC;N4 ,? 9CLUDES ALL ! FACTORS T MAT]I,Y A6ECT ! DET]M9,N (! TRANSF] PRICES1 S* Z M>KET P5ETR,N /RATEGIES OR ANY ECONOMIC ASSUMP;NS T 7 RELI$ ON 6DET]M9E ! TRANSF] PRICES4 #AHC4 ,! LI/ ( DOCU;TS 9 SUBSEC;N #BDG7#D7 (! ,ACT IS N 9T5D$ 6BE AN EXHAU/IVE LI/ (! DOCU;TS NEC 6SUB/ANTIATE T3 #AJJ ,"P #G C#AI --A TAXPAY]'S TRANSF] PRIC+ IS 9 A3ORD.E )! >M'S L5G? PR9CIPLE2 OR --A TAXPAY] HAS MADE R1SONA# EF=TS 6DET]M9E >M'S L5G? TRANSF] PRICES OR ALLOC,NS4 ,! DOCU;T,N REQUIR$ DEP5DS ON ! FACTS & CIRCUM/.ES (! "PICUL> TRANSAC;N4 ,9 O!R ^WS1 "! IS NO "O SET ( DOCU;TS T1 IF MADE OR OBTA9$1 WD 3/ITUTE A 8SAFE H>B\R0 F ! APPLIC,N (! P5ALTY 9 SUBSEC;N #BDG7#C74 #AHD4 ,P>AGRAPH #E.AF (! ,,OECD ,GUIDEL9ES /ATES T 2C (! V>IETY ( BUSI;S SC5>IOS 5C.T]$ 9 PRACTICE1 X IS N POSSI# 6PRODUCE AN EXHAU/IVE LI/ (! DOCU;T,N REQUIR$ 6SUPPORT A "PICUL> PRIC+ ME?OD4 ,9/1D1 ONLY G5]AL GUID.E C 2 GIV5 6ASSI/ TAXPAY]S 9 ID5TIFY+ DOCU;T,N T PROVIDES EVID;E T _! PRIC+ SATISFIES ! >M'S L5G? PR9CIPLE4 #AHE4 ,9 A4I;N 6MEET+ ! BASIC REQUIRE;TS ( SUBSEC;N #BDG7#D71 A TAXPAY]'S DOCU;T,N %D EXPLA9 ! R,NALE SUPPORT+ ! TAXPAY]'S TRANSF] PRICES OR #AJA ,"P #G D#AI ALLOC,NS4 ,USE ( PROP] DOCU;T,N IS ! MO/ E6ECTIVE WAY T TAXPAY]S C DEMON/RATE 6! ,DE"P;T T3 --_! TRANSF] PRICES -PLY )! >M'S L5G? PR9CIPLE2 & --!Y H MADE R1SONA# EF=TS 6-PLY )! >M'S L5G? PR9CIPLE4 #AHF4 ,! E6ICI5T ADM9I/R,N (! TRANSF] PRIC+ RULES 9 ,CANADA REQUIRES CO- OP],N 2T TAXPAY]S &! ,DE"P;T 9 RESOLV+ TRANSF] PRIC+ ISSUES4 ,TAXPAY]S >E 9 ! BE/ POSI;N 6"U/& _! BUSI;SES & 6EXPLA9 _! APPROA* 6TRANSF] PRIC+4 ,AL1 A TAXPAY]'S DOCU;T,N IS A MAJOR FACTOR 9 DET]M9+ :E!R ! ,DE"P;T W REVIEW A "PICUL> TRANSF] PRIC+ ISSUE 9 M DETAIL4 #AHG4 ,! ,DE"P;T EXPECTS ! TAXPAY]'S DOCU;T,N 69CLUDE3 --! G5]AL ORGANIZ,N & DESCRIP;N (! BUSI;S2 --! SELEC;N (A "PICUL> TRANSF] PRIC+ ME?ODOLOGY1 9CLUD+ AN EXPLAN,N ( :Y ! SELECT$ ME?OD IS M #AJB ,"P #G E#AI APPROPRIATE ?AN ANY HI<]-RANK+ ME?ODS2 --! PROJEC;N (! EXPECT$ B5EFITS Z !Y RELATE 6! VALU,N ( AN 9TANGI#2 --! SCOPE (! SE>* & CRIT]IA US$ 6SELECT -P>A#S2 --AN ANALYSIS (! FACTORS DET]M9+ -P>ABIL;Y1 9CLUD+ A REVIEW (! DI6];ES & ATTEMPTS MADE 6MAKE ADJU/;TS2 & --! ASSUMP;NS1 /RATEGIES1 & POLICIES Z !Y RELATE 6! TANGI# PROP]TY1 9TANGI# PROP]TY1 & S]VICES 2+ TRANSF]R$4 #AHH4 ,9 PREP>+ DOCU;T,N1 TAXPAY]S %D ATTEMPT 6WEI< ! SIGNIFIC.E (! TRANSAC;NS 9 T]MS ( _! BUSI;S )! A4I;NAL ADM9I/RATIVE CO/S REQUIR$ 6PREP>E OR OBTA9 S* DOCU;T,N4 ,! OBLIG,N 6F9D -P>A# TRANSAC;NS = APPLY+ ! >M'S L5G? PR9CIPLE IS N AN ABSOLUTE "O4 ,! CO/ & LIKELIHOOD ( F9D+ S* -P>A#S RELATIVE 6! SIGNIFIC.E #AJC ,"P #G F#AI (! TRANSAC;NS 6! TAXPAY] %D 2 TAK5 96A3.T4 -------------------------------------#BJ #AHI4 ,! APPLIC,N ( "O TRANSF] PRIC+ ME?OD Z OPPOS$ 6ANO!R MAY REQUIRE SIGNIFICANTLY DI6]5T 9T]NAL & EXT]NAL 9=M,N1 :1 9 TURN1 W PRODUCE A DI6]5T SET ( SUPPORT+ DOCU;TS4 ,= EXAMPLE1 ! APPLIC,N (! RESIDUAL PR(IT SPLIT ME?OD WD USU,Y REQUIRE AN EXPLAN,N ( :Y HI<]-RANK$ ME?ODS 7 N APPROPRIATE1 Z WELL Z DETAILS (! V>I\S SE>*ES = -P>A#S T 7 3DUCT$4 ,ON ! O!R H&1 ! APPLIC,N (! ,,CUP ME?OD WD N REQUIRE ! SAME 9=M,N4 #AIJ4 ,9 LI #AJD ,"P #G A#BJ TRANSAC;N DOES N REPRES5T AN >M'S L5G? PRICE4 ,= EXAMPLE1 ? CD O3UR IF A TAXPAY] OV]LOOK$ 9=M,N T 0 AVAILA# AT ! "T ! TRANSF] PRICE 0 SET1 OR DETECTS A -PUT,NAL ]ROR 9 ! CALCUL,N (! PRICE4 ,9 ^! 9/.ES1 TAXPAY]S %D MAKE A -P5SAT+ ADJU/;T 6! TRANSF] PRICE 2F FIL+ _! TAX RETURN4 ,= TAX PURPOSES1 ! ADJU/;T %D A3RUE 9 ! YE> 9 : ! TRANSAC;N O3URR$ & TAXPAY]S %D 5SURE T ! ADJU/;T IS FULLY DOCU;T$4 #AIB4 ,": A TAXPAY] RECOGNIZES T A TRANSF] PRICE IS N >M'S L5G? ONLY AF ! FIL+ DUE DATE1 TAXA# 9COME Z REPORT$ ON _! TAX RETURN %D 2 ADJU/$4 ,R1D]S >E REF]R$ 6P>AGRAPHS #BE "? #BG ( ? CIRCUL> = FUR!R GUID.E REG>D+ D[NW>D ADJU/;TS4 #AIC4 ,ON ! O!R H&1 ": ! ADJU/;T PRODUCES AN UPW>D ADJU/;T1 TAXPAY]S MAY 2 3C]N$ T ! TRANSF] PRIC+ P5ALTY CD APPLY 6! ADJU/;T4 ,! #AJE ,"P #G B#BJ ,DE"P;T'S VOLUNT>Y 4CLOSURE POLICY1 Z \TL9$ 9 ,9=M,N ,CIRCUL> #HE-A;,R#B1 ,VOLUNT>Y 4CLOSURES1 APPLIES 6P5ALTIES ASSESS$ "U SUBSEC;N #BDG7#C74 #AID4 ,! DOCU;T,N P]TA9+ 6A ,,QCCA W G5],Y A4RESS3 --! ID5T;Y ( "PICIPANTS 9 ! ,,QCCA2 --! SCOPE (! ACTIVITIES COV]$ 0! >RANGE;T2 --! NATURE & EXT5T ( EA* "PICIPANT'S E6ECTIVE [N]%IP 9T]E/ 9 ! RESULTS (! ,,QCCA ACTIVITIES2 --! MANN] OR BASIS ON : PROPOR;NATE %>ES ( EXPECT$ B5EFITS >E 6BE M1SUR$2 --! R,NALE & ANY ASSUMP;NS "ULY+ ! PROJEC;NS ( EXPECT$ B5EFITS2 --! =M & VALU,N ( EA* "PICIPANT'S 3TRIBU;NS2 --! R,NALE & ANY ASSUMP;NS "ULY+ ! VALU,N ( EA* "PICIPANT'S 3TRIBU;NS2 --! DUR,N (! >RANGE;T2 --! ALLOC,N ( TASKS & RESPONSIBILITIES2 #AJF ,"P #G C#BJ --! PROC$URES = 5T]+ OR )DRAW+ F ! >RANGE;T &! 3SEQU;ES "!(2 & --! POLICIES & PROC$URES GOV]N+ BALANC+ PAY;TS4 #AIE4 ,TAXPAY]S >E REQUIR$ 6DOCU;T ALL MAT]IAL *ANGES 6! >RANGE;T4 ,G5],Y1 ! ,DE"P;T EXPECTS TAXPAY]S 6-P>E ! B5EFITS PROJECT$ 6! ACTUAL B5EFITS R1LIZ$4 ,! ,DE"P;T AC"KL$GES T PROJECT$ B5EFITS W R>ELY 2 ! SAME Z ! B5EFITS ULTIMATELY R1LIZ$4 #AIF4 ,H["E1 MAT]IAL DI6];ES 2T ! B5EFITS PROJECT$ &! B5EFITS R1LIZ$ MAY SU7E/ T ! ASSUMP;NS MADE 6PROJECT FUTURE B5EFITS >E NO L;G] VALID & MAY NE$ 6BE AM5D$ = FUTURE YE>S4 ,AL1 ": A TAXPAY] IS 3T9U,Y UNA# 6PREDICT B5EFITS ) ANY DEGREE ( A3URACY1 X MAY 2 APPROPRIATE 63SID] AN ADJU/;T CLAUSE =! FUTURE4 ,S* A CLAUSE WD 5SURE T EA* "PICIPANT'S %>E (! ACTUAL B5EFITS DERIV$ F A ,,QCCA CORRESPONDS 6! "PICIPANT'S 3TRIBU;N 6A ,,QCCA4 #AJG ,"P #G D#BJ #AIG4 ,! DOCU;T,N P]TA9+ 69TANGI# PROP]TY W G5],Y A4RESS3 --A DESCRIP;N (! 9TANGI# PROP]TY1 POT5TIAL M>KET APPLIC,N1 & ADVANTAGES ! 9TANGI# PROP]TY PROVID$ 9 ! "PICUL> M>KET2 --! PREVAIL+ 9DU/RY ROYALTY RATES2 --! T]MS (! LIC5SE1 9CLUD+ GEOGRAPHIC LIMIT,NS1 "T LIMIT,NS1 & EXCLUSIV;Y "RS2 --! S+UL>;Y (! 9V5;N &! P]IOD = : X IS LIKELY 6REMA9 UNIQUE2 --TE*NICAL ASSI/.E1 TRADEM>KS1 & "K-H[ PROVID$ AL;G ) A3ESS 6! PAT5T2 --PR(ITS ANTICIPAT$ 0! LIC5SEE2 & --B5EFITS 6! LIC5SOR >IS+ F %>+ 9=M,N ON ! EXP]I;E (! LIC5SEE4 #AIH4 ,9 G5]AL1 ! ,DE"P;T 3SID]S T ! MAK+ ( R1SONA# EF=TS 6DET]M9E & USE >M'S L5G? TRANSF] PRICES OR ALLOC,NS REQUIRES ! TAXPAY] 63SID] APPLY+ A RECOMM5D$ ME?OD 9 A3ORD.E )! NATURAL HI]>*Y ( RECOMM5D$ ME?ODS REF]R$ 6IN ,"P #C ( ? CIRCUL>4 ,A #AJH ,"P #G E#BJ TAXPAY]'S DOCU;T,N %D EXPLA9 ! *OICE (! "PICUL> ME?OD ADOPT$4 ,! TAXPAY] %D AL DOCU;T ! 3SID],N GIV51 IF ANY1 6ANY HI<]-RANK+ ME?ODS &! ULTIMATE R1SON !Y 7 REJECT$4 #AII4 ,EVID;E ( H>D B>GA9+ 2T 5TITIES )9 A NON->M'S L5G? GR\P IS N1 ON XS [N1 SU6ICI5T 6E/ABLI% T D1L+S 2T "PIES 9 A NON->M'S L5G? GR\P >E AT >M'S L5G?4 -------------------------------------#BA #BJJ4 ,"S BUSI;S /RATEGIES 9VOLVE A REDUC;N 9 CURR5T PR(ITS 9 ANTICIP,N ( AN 9CR1SE 9 FUTURE PR(ITS4 ,! IMPORTANT ISSUE IS :E!R AN >M'S L5G? "PY WD H BE5 PREP>$ 6TRADE (F CURR5T PR(ITS =! EXPECT,N ( AN 9CR1SE 9 FUTURE PR(ITS "U SIMIL> 3DI;NS4 ,": A TAXPAY] IMPLE;TS S* A /RATEGY1 XS DOCU;T,N WD USU,Y 9CLUDE3 --PROJEC;NS (! FUTURE B5EFITS1 9CLUD+ PR(ITS2 & --A SUMM>Y (! ASSUMP;NS : =M ! BASIS (! /RATEGY4 #AJI ,"P #G A#BA #BJA4 ,BUSI;S /RATEGIES1 9CLUD+ M>KET P5ETR,N S*EMES1 C H A SIGNIFICANT IMPACT ON ! DET]M9,N ( TRANSF] PRICES4 ,"!=E1 ! ,DE"P;T W CLOSELY SCRUT9IZE A TAXPAY]'S EXPLAN,N ( BUSI;S /RATEGIES4 #BJB4 ,! DOCU;T,N REQUIR$ 0SUBSEC;N #BDG7#D7 (! ,ACT MAY 9CLUDE =EIGN-BAS$ DOCU;TS & 9=M,N4 ,! G5]AL PR9CIPLES DEVELOP$ 9 SUBSEC;N #BDG7#D7 AL APPLY 6=EIGN-BAS$ DOCU;T,N1 : M1NS T ! TAXPAY]'S DOCU;T,N %D 9CLUDE =EIGN- BAS$ DOCU;TS 6! EXT5T T !Y >E RELEVANT 9 DET]M9+ >M'S L5G? PRICES4 #BJC4 ,IF ANY (! DOCU;T,N SUBMITT$ 6! ,DE"P;T IS N 9 ,5GLI% OR ,FR5*1 ! TAXPAY] M/ PROVIDE AN (FICIAL TRANSL,N )9 #CJ "DS (A REQUE/ 0! ,DE"P;T4 #BJD4 ,9 A4I;N 6! DOCU;T,N REQUIR$ 0SUBSEC;N #BDG7#D7 (! ,ACT1 SEC;N #BCC.A (! ,ACT REQUIRES RESID5TS ( ,CANADA1 & NON-RESID5TS :O C>RY ON BUSI;S 9 ,CANADA1 6PROVIDE PRESCRIB$ 9=M,N 3C]N+ NON->M'S L5G? TRANSAC;NS ) NON-RESID5TS4 #AAJ ,"P #G B#BA #BJE4 ,=M ,T#AJF1 ,9=M,N ,RETURN ( ,NON- ,>M'S ,L5G? ,TRANSAC;NS ) ,NON- ,RESID5TS1 IS AN ANNUAL 9=M,N RETURN FIL$ 0REPORT+ P]SONS1 9CLUD+ CORPOR,NS1 TRU/S1 & 9DIVIDUALS1 & REPORT+ "PN]%IPS4 ,! ,DE"P;T USES ! 9=M,N PROVID$ ON F,=M ,T#AJF 6SCRE5 NON->M'S L5G? TRANSAC;NS = REVIEW & AUDIT4 #BJF4 ,! P5ALTIES APPLICA# 6,=M ,T#AJF 9CLUDE3 --LATE FIL+ P5ALTIES2 --FAILURE 6FILE P5ALTIES2 & --FALSE /ATE;T OR OMIS.NS P5ALTIES4 #BJG4 ,=M ,T#AJF IS AVAILA# AT \R TAX S]VICES (FICES OR ON ! ,9T]NET AT _+WWW.RC.GC.CA_:4 ,"P #H4 ,3FID5TIAL;Y ( ,?IRD- ,"PY ,9=M,N #BJH4 ,9 ! 3TEXT ( AN 9COME TAX AUDIT1 ! ,DE"P;T MAY1 & DOES 9 ISOLAT$ CASES1 USE ?IRD-"PY -P>A# 9=M,N GA!R$ #AAA ,"P #H C#BA 0! ,M9I/] 9 A3ORD.E )! ,ACT Z ! BASIS ( AN ASSESS;T4 ,H["E1 ! ,DE"P;T TR1TS ?IRD-"PY 9=M,N Z 3FID5TIAL & 3SID]S XF PROHIBIT$ F 4CLOSURE UN.S ! 4CRE;N>Y 4CLOSURE PROVI.NS (! ,ACT PROVIDE = AN EXCEP;N4 ,! ,DE"P;T TAKES A /RICT 9T]PRET,N (! 4CLOSURE PROVI.NS 3TA9$ 9 ! ,ACT & MAKES E EF=T 6MA9TA9 ! SECRECY ( ?IRD-"PY 9=M,N GA!R$ "U ! ,ACT4 #BJI4 ,": ?IRD-"PY -P>A# 9=M,N =MS ! BASIS ( AN ASSESS;T1 ! TAXPAY] "U REVIEW W 2 S ADVIS$4 ,?IRD-"PY 9=M,N MAY 2 PROVID$ 6! TAXPAY] "U REVIEW 6! EXT5T T ! PROVI.N (! 9=M,N IS 3SI/5T )! ,DE"P;T'S -MIT;T 6PROTECT 3FID5TIAL DATA4 ,": ! TAXPAY] SEEKS 4CLOSURE ( ANY 9=M,N (A 3FID5TIAL NATURE1 ! ,DE"P;T W SEEK WRITT5 3S5T F ! ?IRD- "PY 64CLOSE ! 9=M,N 6! TAXPAY] "U REVIEW4 ,IF 3S5T IS N GRANT$1 ! ,DE"P;T MAKES E EF=T 6MA9TA9 ! SECRECY ( T 9=M,N4 #AAB ,"P #H D#BA #BAJ4 ,:5 ! TAXPAY] HAS FIL$ A ,NOTICE ( ,APP1L )! ,TAX ,C\RT ( ,CANADA1 SUBSEC;N #BDA7#C7 (! ,ACT P]MITS ! ,DE"P;T 6REL1SE ! ?IRD-"PY -P>A# 9=M,N4 ,N"E!.S1 IF ! 9=M,N IS 6BE REL1S$1 ! ,DE"P;T W F/ 3TACT ! ?IRD- "PY 6ALL[ !M 6TAKE :AT"E /EPS >E APPROPRIATE 6PROTECT _! 9=M,N F 4CLOSURE4 ,= EXAMPLE1 ! ,DE"P;T CD SU7E/ T ! ?IRD-"PY SEEK A 3FID5TIAL;Y ORD] F ! ,C\RT4 ,"P #I4 ,"P ,,XIII ,)HOLD+ ,TAX #BAA4 ,": ADJU/;TS >E MADE "U SUBSEC;N #BDG7#B7 (! ,ACT1 )HOLD+ TAX "U ,"P ,,XIII (! ,ACT MAY AL 2 PAYA# ON ! AM.T (! ADJU/;T1 Z A DEEM$ DIVID5D1 0VIRTUE (! DEEM+ PROVI.NS ( P>AGRAPH #BAD7#C77A7 (! ,ACT4 #AAC ,"P #I E#BA ,= EXAMPLE1 IF A TAXPAY] PUR*AS$ PROP]TY F XS =EIGN P>5T AT A PRICE 9 EXCESS ( :AT >M'S L5G? "PIES WD H PD1 ! PRICE WD 2 REDUC$ 9 A3ORD.E ) SUBSEC;N #BDG7#B74 ,! EXCESS AM.TS PD 6! P>5T1 : WD 2 TAXA# "U SUBSEC;N #AE7#A7 IF ! P>5T 0 A RESID5T ( ,CANADA1 >E DEEM$ 6BE A DIVID5D 6! =EIGN P>5T "U P>AGRAPH #BAD7#C77A7 (! ,ACT4 ,! DEEM$ DIVID5D IS SUBJECT 6,"P ,,XIII )HOLD+ TAX "U SUBSEC;N #BAB7#B74 #BAB4 ,! ,DE"P;T MAY GRANT RELIEF F ,"P ,,XIII TAX IF1 Z A RESULT ( AN AUDIT1 X HAS BE5 DET]M9$ T TRANSF] PRIC+ ADJU/;TS >E REQUIR$ &! FOLL[+ 3DI;NS >E MET3 --! ,CANADIAN TAXPAY] AGREES 9 WRIT+ 6! PROPOS$ TRANSF] PRIC+ ADJU/;TS 7S* AN AGREE;T DOES N RE/RICT ! ,CANADIAN TAXPAY] OR ! NON->M'S L5G? "PY F SEEK+ RELIEF "U ! ,MUTUAL ,AGREE;T ,PROC$URE >TICLE ( ,CANADA'S TAX TR1TIES72 #AAD ,"P #I F#BA --! ADJU/;TS DID N >ISE F A TRANSAC;N T MAY 2 3SID]$ ABUSIVE2 & -------------------------------------#BB --! =EIGN CORPOR,N REPATRIATES ! FUNDS EQUIVAL5T 6! GROSS AM.T >IS+ F ! TRANSF] PRIC+ ADJU/;T IMMLY .OR AGREES 9 WRIT+ 6REPATRIATE S* AM.T )9 A R1SONA# "T4 #BAC4 ,REPAY;T IS G5],Y MADE 9 ! SAME CURR5CY Z ! ORIG9AL PAY;T 6: ! ADJU/;T RELATES4 ,REPATRI,N1 : W 2 SUBJECT 6AUDIT V]IFIC,N1 MAY 2 C>RI$ \ "? ! USE ( 9T]-COMPANY LOAN A3.TS4 ,"P #AJ4 ,-PET5T ,AU?OR;Y ,PROC$URES #BAD4 ,CANADA HAS SIGN$ M ?AN #FJ BILAT]AL 9COME TAX TR1TIES ) O!R C.TRIES4 ,"O (! R1SONS = SIGN+ S* TR1TIES IS 6ELIM9ATE ! D\# TAX,N T (T5 RESULTS F ! ALLOC,N ( TAX REV5UES F 9T]N,NAL TRANSAC;NS4 #AAE ,"P #AJ A#BB #BAE4 ,_M ( ^! TR1TIES 3TA9 RULES 3C]N+ ! ALLOC,N ( 9COME 9 A3ORD.E )! >M'S L5G? PR9CIPLE4 ,^! RULES3 -->E G5],Y F.D 9 ,>TICLE ,,IX (! RELEVANT TR1TY2 -->E (T5 MODELL$ AF ,>TICLE #I (! ,,OECD ,MODEL ,TAX ,3V5;N ON ,9COME & ON ,CAPITAL2 & --PROVIDE A FRAME"W 9 : ADJU/;TS 6PR(ITS 0"O C.TRY'S TAX ADM9I/R,N MAY 2 (FSET 0A CORRESPOND+ ADJU/;T 0! TAX ADM9I/R,N ( ANO!R C.TRY4 #BAF4 ,MO/ TAX TR1TIES 3TA9 SPECIFIC "T LIMIT,NS = SEEK+ RELIEF4 ,"!=E1 TAXPAY]S M/ 3SULT ! APPROPRIATE TAX TR1TY 6E/ABLI% ! SPECIFIC "T LIMIT,NS4 ,FAILURE 6NOTIFY ! APPROPRIATE -PET5T AU?ORITIES )9 ! APPLICA# "T LIMIT,NS MAY RESULT 9 D\# TAX4 #BAG4 ,! ,M9I/] MAY N F9D X APPROPRIATE 6EX]CISE 8 4CRE;N1 "U SUBSEC;N #BDG7#AJ7 (! ,ACT1 6MAKE AN ADJU/;T "U SUBSEC;N #BDG7#B7 (! ,ACT1 :5 A =EIGN REV5UE AU?OR;Y HAS 9ITIAT$ OR #AAF ,"P #AJ B#BB PROPOSES A TRANSF] PRIC+ ADJU/;T4 ,9 S* CASES1 ! ,M9I/] EXPECTS ! TAXPAY]1 "U REVIEW 0! =EIGN TAX AU?OR;Y1 6SEEK ASSI/.E F ! ,CANADIAN ,-PET5T ,AU?OR;Y 6CLAIM CORRESPOND+ ADJU/;TS OR DEDUC;NS4 #BAH4 ,CANADIAN TAXPAY]S H A RESPONSIBIL;Y 6SEEK ! ASSI/.E (! ,CANADIAN ,-PET5T ,AU?OR;Y .2F3 --MAK+ CLAIMS = CORRESPOND+ ADJU/;TS OR DEDUC;NS 9 EI _! CURR5T ,CANADIAN 9COME TAX RETURNS2 OR --FIL+ AM5D+ 9COME TAX RETURNS4 #BAI4 ,": A TRANSF] PRIC+ ADJU/;T RESULTS 9 D\# TAX,N1 A TAXPAY] MAY REQUE/ -PET5T AU?OR;Y 3SID],N Z PROVID$ "U ! ,MUTUAL ,AGREE;T ,PROC$URE ,>TICLE ( ,CANADA'S TAX TR1TIES4 ,! R1D] MAY REF] 6! MO/ REC5T V].N ( ,9=M,N ,CIRCUL> #GA-AG1 ,REQUE/S = ,-PET5T ,AU?OR;Y ,3SID],N ,"U ! ,MUTUAL ,AGREE;T ,PROC$URES 9 ,9COME ,TAX ,3V5;NS4 ,T CIRCUL> GIVES A M DETAIL$ 4CUS.N (! PROC$URES #AAG ,"P #AJ C#BB & A3EPTABIL;Y ( REQUE/S = -PET5T AU?OR;Y 3SID],N4 #BBJ4 ,"O (! PURPOSES ( -PET5T AU?OR;Y NEGOTI,NS IS 6A4RESS ! TRANSF] PRIC+ ADJU/;TS OR ALLOC,NS T RESULT 9 D\# TAX,N4 ,! APPLIC,N (! ,CANADIAN TRANSF] PRIC+ P5ALTY IS A -PLI.E ISSUE N COV]$ 0! MUTUAL AGREE;T PROC$URES4 ,"!=E1 ! ,CANADIAN ,-PET5T ,AU?OR;Y W N3 --NEGOTIATE ) =EIGN REV5UE AU?ORITIES ! ,DE"P;T'S "R 6APPLY ! ,CANADIAN TRANSF] PRIC+ P5ALTY2 OR --*ALL5GE ! POSI;N ( =EIGN REV5UE AU?ORITIES ON ! APPLIC,N ( _! TRANSF] PRIC+ P5ALTIES4 ,H["E1 ! ,DE"P;T W ADJU/ ! AM.T (! ,CANADIAN TRANSF] PRIC+ P5ALTY ACLY ": ! -PET5T AU?ORITIES NEGOTI,NS RESULT 9 A *ANGE 6! AM.T (! TRANSF] PRIC+ 9COME OR CAPITAL ADJU/;TS4 #AAH ,"P #AJ D#BB #BBA4 ,! ,DE"P;T W N 5T] 96-PET5T AU?OR;Y NEGOTI,NS NOR APPLY ! TR1TY PROVI.NS 6ELIM9ATE D\# TAX 9 ! EV5T (3 --FRAUD2 --WIL;L DEFAULT2 OR --GROSS NEGLIG;E 0A TAXPAY]4 #BBB4 ,"U ! ,ACT &! LAWS ( MO/ ( ,CANADA'S TR1TY "PN]S1 TAXPAY]S H A RESPONSIBIL;Y 6APPROPRIATELY DOCU;T _! TRANSAC;NS ) NON->M'S L5G? NON- RESID5TS4 ,)\T ! PROP] DOCU;T,N1 -PET5T AU?ORITIES MAY 2 UNA# 6RESOLVE 4PUTES EXP$ITI\SLY & D\# TAX,N C RESULT1 9 EXTREME CIRCUM/.ES4 ,"P #AA4 ,ADV.E ,PRIC+ ,>RANGE;TS #BBC4 ,! ,DE"P;T'S ,ADV.E ,PRIC+ ,>RANGE;T 7,,APA7 PROGRAM ASSI/S TAXPAY]S 9 DET]M9+ TRANSF] PRICES A3EPTA# =! ,ACT4 ,AN ,,APA IS AN AGREE;T OR >RANGE;T 2T ! TAXPAY] &! ,DE"P;T4 ,AN ,,APA /IPULATES A #AAI ,"P #AA E#BB MUTU,Y A3EPTA# TRANSF] PRIC+ ME?OD 6BE US$ ON SPECIFI$ 9T]N,NAL TRANSAC;NS =A FUTURE P]IOD1 ) PROVI.N 6RENEW4 ,A BILAT]AL ,,APA "U : A TR1TY "PN] AL AGREES 6! SAME TRANSF] PRIC+ ME?ODOLOGY PROVIDES ASSUR.E T POT5TIAL D\# TAX,N W 2 AVOID$4 ,= FUR!R DETAILS1 ! R1D] MAY REF] 6! MO/ REC5T V].N ( ,9=M,N ,CIRCUL> #ID-D1 ,9T]N,NAL ,TRANSF] ,PRIC+3 ,ADV.E ,PRIC+ ,>RANGE;TS 7,,APA74 -------------------------------------#BC #BBD4 ,NO TRANSF] PRIC+ ADJU/;TS "U SUBSEC;N #BDG7#B7 (! ,ACT %D >ISE REG>D+ ! TRANSAC;NS COV]$ 0! ,,APA Z L;G Z3 --! ,,APA REMA9S 9 E6ECT2 & --! TAXPAY] -PLIES ) XS T]MS & 3DI;NS4 ,)\T ANY TRANSF] PRIC+ ADJU/;TS1 ! P5ALTY 9 SUBSEC;N #BDG7#C7 (! ,ACT WD N 2 APPLICA#4 #ABJ ,"P #AB4 ,CU/OMS ,VALU,NS A#BC #BBE4 ,! ME?ODS = DET]M9+ VALUE = DUTY "U ! CURR5T PROVI.NS (! ,CU/OMS ,ACT RESEM# ^? \TL9$ 9 ? CIRCUL>4 ,H["E1 DI6];ES D REMA94 ,! ,DE"P;T IS N OBLIG$ 6A3EPT ! VALUE REPORT$ = DUTY :5 3SID]+ ! 9COME TAX IMPLIC,NS (A NON->M'S L5G? IMPORT,N4 #ABA