Document Fragment View

Matching Fragments

"C.1 In general 2.108 The transactional profit split method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction (or in controlled transactions that are appropriate to aggregate under the principles of paragraphs 3.9-3.12) by determining the division of profits that independent enterprises would have expected to realize from engaging in the transaction or transactions. The transactional profit split method first identifies the profits to be split for the associated enterprises from the controlled transactions in which the associated enterprises are engaged (the "combined profits"). References to "profits" should be taken as applying equally to losses. See paragraphs 2.124-2.131 for a discussion of how to measure the profits to be split. It then splits those combined profits between the associated enterprises on an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arm's length. See paragraphs 2.132-2.145 for a discussion of how to split the combined profits."
6.3.13.3 The Profit Split Method starts by identifying the profits to be divided between the associated enterprises from the controlled transactions. Subsequently, these profits are divided between the associated enterprises based on the relative value of each enterprise's contribution, which should reflect the functions performed, risks incurred and assets used by each enterprise in the controlled transactions. External market date (e.g. profit split percentages among independent enterprises performing comparable functions) should be used to value each enterprise's contribution, if possible, so that the division of combined profits between the associated enterprises is in accordance with that between independent enterprises performing functions comparable to the functions performed by the associated enterprises. The Profit Split Method is applicable to transfer pricing issues involving tangible property, intangible property, intangible property, trading activities or financial services.
A transactional net margin method is unlikely to be reliable if each party to a transaction makes valuable, unique contributions, see paragraph 2.4. In such a case, a transactional profit split method will generally be the most appropriate method,( see paragraph 2.109)." In such a case, a transactional profit split method will generally be the Most Appropriate Method.
18.9 Even otherwise, we find that the TPO has, while adopting the TNMM method, considered four comparables, i.e., (i) City Online Services Ltd., (ii) HCL Infinet Ltd., (iii) Sify Ltd., and (iv) Southern Online Bio Technologies Ltd.

A.Ys. 2007-08 / 2008-09 Global One India P.Ltd., New Delhi

10. Further, many of the global TP specialists have commented on the lack of reliable third party data, which often renders comparable PSM impossible to apply for splitting profits amongst related parties, except for in the limited cases of joint venture arrangements and determination of royalty, where again, the split of profits between the licensor and the licensee can be discernible on the face of accounts. Extracts from a few of the said articles/ books are reproduced below for ease of reference - a. J.P. Warner and H.B. McCawley, Transfer Pricing: The Code and the Regulations, note 70, at A-144; and T. Horst. Profit Split Methods 0,60 Tax Notes (1993), at 335 - "The comparable profit split method is rarely applied, as information on comparable reference transactions will not normally be available."