10 (vol.12,No.23) ANALYSIS a the levels of supply and demand in the market as a generally appropriate for the comparison between whole and in particular regions, if relevan tested party taxpayer and the third-party comparable consumer purchasing power; the nature and extent of government regulation of he mar Given this understanding of the oeCd guidelines a costs of production, including the costs of land, la TNMM comparability criteria, the correct methodologi bor, and capitai uating the question of ■ transport costs European comparables set versus a country-specific the level of the market (retail or wholesale); and comparables set is to test whether there are"material factor(s) "that cause the results of the a the date and time of transactions The comparability factors indicated above can be im arms-length range to differ from the results of the country-specific arm' s-length range. In other words, if kets are comparable to one another, but they do not of- he arms-length range of results determined on a pan- fer a transfer pricing practitioner clear guidance on length range of results determined for specific coun tries, then there are no material factors that make the purposes of applying the TNMM. It is clear, however ountry-specific arm's-length ranges more compara that there is no explicit language in the OECD guide than the pan-European range. Therefore, the OECD lines that defines a market by national boundaries. But guidelines would not require that a country-specific guidelines guidance oes not di rectly address the issue of using pan-European versus comparability criterion be added, and a pan-European comparables analysis approach would be defensible untry-specific comparable companies and provide reliable resul There are certain characteristics in the eu market that appear at least consistent with a"Europe is one market"argument based on the oecd guidelines list C Comparability Analysis above, For example, the Eu member states are prima- Process Under TNMM rily geographically contiguous, have a harmonized level of government regulation, have a commonality of cur- This section explains the comparability analysis pro- rency in many member states, and low barriers to the cess under the TNMM and describes this process to ovement of goods, people, and capital. Nevertheless, both outline the approach that has been applied to gen while these factors are consistent with market conver- erate statistical samples for pan-European and Euro gence,they in and of themselves do not clearly lead to pean country-specific comparables data sets in the next a conclusion that Europe should be considered one section, and to review, in a very practical way, how market for TNMM transfer pricing purposes. Empirical country-5Pa European country-specific comparability pecific comparability criteria would be sp testing is required to analyze this issue. fied for search versus no country-specific comparability criteria B General Comparability for for a pan-European comparability analysis the tNMM in the oECD Guidelines hether pan-European or European country-specific Deloitte's European transfer pricing practices gener- third-party data is more appropriate when ally use the 1,000,000 company version of the Amadeus TNMM and other relevant methods that use Europear database published by bureau van Dijk; this database is databases. Therefore, the OECD guidelines'TNMM also widely used by European tax authorities an nd other comparability criteria are important factors in analyz- transfer pricing practitioners. 39 The Amadeus database ng the issue of pan-European versus country-specific contains a large distribution of financial data for com comparables set panies located in every European country, although the The OECD guidelines indicate that taxpayers should representation of companies whose financial data is re assess the following general factors when establishing ported by country is not homogeneous. It is widely comparability under the TNMM roduct and functional similarity not file their financial results with the authorities, so dustry forces, such as the threat of new competi that this information does not appear in the Amadeus tion, varying cost structures, the cost of capital, indus- database. The authors'report on the distribution of the try experience, etc. and companies used in the empirical tests in the next sec a the ability to measure profits consistently between tion also confirms that the representation of companies the taxpayer and potentially comparable companies is uneven. 0 Therefore, taxpayers in certain countries The basic intent of the TNMM comparability criteria who use the TNMM have little choice but to use third the oeCd guidelines is to ensure that the net operat party comparable companies from other countries; this ing profit comparison between the third- party compa rable companies and the taxpayer provides a clear indi cation as to whether the taxpayer is employing arm's 39 pendix I provides a description of the different euro leng tth transfe licies Therefore. other mate pean databases aggregated to the Amadeus 1,000, 000 com- al factors that could cause a difference in the profits earned by third-party comparable companies relative to al fa a taxpayer tested party should be reasonably elim at will also affect this representation, including potential nated. The OECD guidelines recognize that it may not ry concentrations in certain geographic regions or cour be possible to eliminate all functional, risk, and other nd the fact that certain European countries are much differences so that an arm's- length range of results and therefore have fewer companies relative to large 04 Copyright. 2004 TAX MANAGEMENT INC, a subsidiary of The Bureau of National Affairs, inc. TMTR ISSN 1063-.20