ANALY SIS (vo.12,No.23)s9 ability differentials letely integrated markets tax rates)are not substantiated by further economic velop the authors'model for empirical testing: d to de- and insufficient data--especially no observation of post a The paper now turns to an analysis to review what e oecd guidelines detail about the issue ar Therefore, no systematic statistical analysis of com IV. Comparability and Markets in the pany profitability within the European Union has yet been prepared that provides an answer to the question OECD Guidelines and the TNMM whether it is economically justifiable to perform pan- European comparability studies under the tnmm or re- Comparability Analysis Process lated methods as compared to country-specific TNMM ility studies. However To test whether under the applicable OECD compa of the existing rability criteria, a pan-European comparability analysis cK company profitability generally seem to indi e variability of profits in the European Union for the TNMM and related methods is justified, a sig. nificant number of statistical tests were performed us rable to that in fully integrated markets such and the United States ng TNMM comparables results. specifically the au- thors generated a large number ta sets consisting of both closely and broadly comparable third-party data E Summary of Previous Research and statistically compared the country-specific arms- ngth ranges to the pan-European arm's-length ranges Previous research has been analyzed to determine This statistical analysis is presented in the next section This next section also presents the transfer pricing whether it addressed or provided valuable insight into foundations of the tests that follow in the next section the question whether pan-European comparability analysis could be appropriate when applying the In particular, the OECD guidelines' discussion regard- NMM and other relevant methods using databases of ng markets and eco rd-party comparable companies. The previous re- Next, the OECD guidelines'comparability criteria ap earch that was reviewed includes studies on price con plicable to the TNMM is reviewed. Finally, the process ergence, intra-EU trade, European financial market in- of identifying comparable third-party companies under the TNMM is described in the context of the oeCD egration, and profit convergence. In general, the body guidelines are integrating(or are already integrated) and that in A. Market Comparability for the TNMM mong European countries are not meaningfully differ In the OECD Guidelines ent than the differences found in integrated markets such as Japan and the united States The OECD guidelines do not specifically address market comparability issues that are relevant for the Of all studies that were reviewed those that come losest to the authors' investigation are the studies that application of the TNMM.Instead, comparability of conomic and market circumstances is addressed as xplore profit convergence. However, none of the stud comparability factors to be considered when evaluating stion from a transfer ic- all transfer pricing methods under the general compa- ng comparability perspective. The studies that address rability discussion found in Paragraph 1.30. The guid rice convergence are very important, but for transfer ance is therefore general in nature, with a greater em- pricing purposes are generally more directly relevant to hasis on pricing factors relevant to the cup than on he application of the comparable uncontrolled price profitability factors relevant to the application of the ods(for instance, the resale price s and cost-plus meth ods. The studies that evaluate the level of intra-eu The oeCd guidelines recognize that price across markets. Therefore, the markets in which the trade and the level of European financial market inte- comparable companies and the related parties o,o the gration are important from a consistency perspective should be comparable, or that any differences integration are important mechanisms to ensure the or thar s should not have a material effect on the price because intra-EU trade and European financial market market differences. 8 member states In evaluating market comparability, the OECD guidelines suggest that the economic circumstances OECD guidelines, the CUP method is a transfer pricing method that compares the price for propert a geographic location or services transferred in a controlled transaction to the price I the size of the markets charged in a comparable uncontrolled transaction under com- nt of competition in the markets and the parable circumstance itive positions of th ers and sellers .S According to the oECd guidelines, the resale price a the availability of substitute nd services thod is a transfer pricing method that compares the gros proft mard ction to the gross profit margin earned in compa- that an associated enterprise earns in a related i: That is, market comparability is not addressed as part of According to the OECD guidelines, the the TNMM comparability factors discussed at Paragraphs 3.34 is a transfer pricing method that compares the ot cost that an associated enterprise eams One would presume that this reference to price ansaction to the profit per unit of cost earned in y ences can also apply to profit differences across market hird-party transactions ole though this point is not explicitly ddressed in th TAX MANAGEMENT TRANSFER PRICING REPCRT SSN 10632069 BNA TAX -14-0