Transfer pricing operational guiance: Comparability Analysis
The practical application of the arm’s length principle requires the undertaking of a “comparability analysis” which is a comparison of the terms and conditions of the controlled transaction between associated enterprises with those that would have been made in a comparable transaction undertaken by independent enterprises in comparable circumstances (see paragraph 1.33 of the Guidelines).
A comparability analysis involves two key aspects:
- accurate delineation of the controlled transaction.
- comparison of the price and conditions of the controlled transaction with those of a comparable transaction between independent enterprises.