Non-residents working on the UK continental shelf: transfer pricing: bareboat charter - transactional net margin method
This is the fourth of the methods referred to at OT43320. Paragraphs 3.26 - 3.48 of the OECD Guidelines indicate how this method works.
This method examines the net profit margin relative to an appropriate base (for example costs, sales, assets) that one of the parties realises from a controlled transaction so it operates in a similar way to the cost-plus (OT43380) and resale price (see OT43360) methods.
To apply it in the context of bareboat chartering requires a functional analysis to be made of the rig operator’s operations and risks, and then to compare the operator’s net margin on the controlled transaction relative to costs with comparable net margins of independent enterprises undertaking comparable uncontrolled transactions. As observed in OT43330, finding such comparable transactions is very difficult.
Experience to date suggests that companies have difficulty in meeting the standard of comparability envisaged in the Guidelines, so that this method is not generally found to be usable.