What are the best practices for selecting and applying comparables in MAP cases?

1 Follow the OECD guidelines

The first and foremost best practice is to follow the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which provide a comprehensive framework and guidance for selecting and applying comparables in transfer pricing analysis. The OECD guidelines are widely accepted and followed by most countries, and are often referred to by competent authorities in MAP cases. The OECD guidelines recommend using a five-step process to identify comparables: (1) determine the years to be covered; (2) select the most appropriate transfer pricing method; (3) identify the relevant characteristics of the transactions or entities to be compared; (4) select potential comparables from publicly available sources; and (5) compare the conditions of the transactions or entities and make appropriate adjustments if necessary.

2 Use multiple sources of comparables

Another best practice is to use multiple sources of comparables, such as databases, reports, studies, industry publications, or third-party contracts, to increase the reliability and credibility of the transfer pricing analysis. Using multiple sources can help to overcome the limitations and biases of any single source, and to capture a wider range of comparable transactions or entities. However, using multiple sources also requires careful screening and filtering of the data, as well as consistency and transparency in the selection criteria and the application of adjustments. Moreover, using multiple sources may not always be feasible or cost-effective, especially in cases where there is a lack of comparable data in the relevant market or jurisdiction.

3 Consider the local market conditions

A third best practice is to consider the local market conditions of the transactions or entities to be compared, and to use comparables that reflect those conditions as much as possible. Local market conditions can include factors such as the level of competition, the availability of resources, the regulatory environment, the consumer preferences, the economic situation, or the currency fluctuations. These factors can have a significant impact on the profitability and risk profile of the transactions or entities, and thus affect the arm's length range of transfer prices. Therefore, it is important to use comparables that operate in similar or comparable markets, or to make appropriate adjustments to account for the differences in market conditions.

5 Review and update the comparables regularly

A fifth best practice is to review and update the comparables regularly, and to reflect any changes or developments that may affect the transfer pricing analysis. Comparables are not static, but dynamic, and may vary over time due to factors such as market conditions, business strategies, product life cycles, or technological innovations. Therefore, it is important to monitor and update the comparables periodically, and to ensure that they remain relevant and reliable for the transfer pricing analysis. Reviewing and updating the comparables can also help to identify any potential risks or opportunities for the transfer pricing policy, and to adjust it accordingly.

6 Seek professional advice

A sixth and final best practice is to seek professional advice from experts or consultants who have experience and expertise in transfer pricing and MAP cases. Transfer pricing is a complex and evolving field, and requires a high level of technical knowledge and analytical skills. Moreover, MAP cases can involve multiple jurisdictions, different tax systems, conflicting interpretations, and lengthy negotiations. Therefore, it can be beneficial to seek professional advice from qualified and reputable professionals who can provide guidance, support, and representation in the selection and application of comparables in MAP cases. Professional advice can also help to avoid or minimize errors, disputes, penalties, or double taxation.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?