Why shouldn’t you consider an MNT analysis with gross margin indicators?Quito, July 03, 2023
The MNT studies the net benefit (Operating Profit) calculated on an appropriate magnitude (for example, costs, sales or assets) that a taxpayer obtains from his operation that includes related operations. Therefore, the operating net margin method is applied in a similar way to the cost plus and resale price methods. However, the analysis through the indicators of Gross Margin (MB) and Additional Cost (CA), using information from independent public third parties, in which its denominator is its gross profit over sales or sales costs depending on the case, can be seen committed, due to possible differences that for some companies, its registration is considered as cost of sales and other companies as part of their operating expenses. The analysis using public comparables, despite the fact that they have a detail of information that allows an exhaustive comparability analysis, does not have a detail that allows these differences to be identified, and therefore, in accordance with the regulations, make adjustments of accounting comparability.
It is important to note that there are cases with court rulings confirming the criteria indicated and established in the OECD Guidelines applicable to transfer pricing to multinational companies and tax administrations.
These gross margin indicators could be most useful when done with inside information. That is, when we can segment our financial statements, in operations with third parties and related parties, considering that there is the same accounting policy. With this analysis approach, these indicators would be the most appropriate for the application of the Transfer Pricing methodology.
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