Comparable uncontrolled price method (CUP) for Transfer Pricing 2012

 - in (Malaysian) IRBM Transfer Pricing Guideline 2012 
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Cases applicable: No specific, as long comparable transaction available.

The CUP method is ideal only if comparable products are available or if reasonably accurate adjustments can be made to eliminate material product differences. Other methods will have to be considered if material product differences cannot be adjusted to give a reliable measure of an arm’s length price.

The CUP method is the most direct way of ascertaining an arm’s length price. It involves the direct price comparison for the transaction of a similar product between independent parties.

An uncontrolled transaction is comparable to a controlled transaction for purposes of the CUP method if one of the following conditions is met:

1.  None of the differences (if any) between the transactions being compared or between the enterprises undertaking those transactions could materially affect the price in the open market; or
2.  Reasonably accurate adjustments can be made to eliminate the material effects of such differences.

A comparability analysis under the CUP method should consider amongst others the following:

(a) Product characteristics such as physical features and quality.

(b) If the product is in the form of services, the nature and extent of such services provided.

(c) Whether the goods sold are compared at the same points in the production chain.

(d) Product differentiation in the form of patented features such as trademarks, design, etc.

(e) Volume of sales if it has an effect on price.

(f) Timing of sale if it is affected by seasonal fluctuations or other changes in market conditions.

(g) Whether costs of transport, packaging, marketing, advertising, and warranty are included in the deal.

(h) Whether the products are sold in places where the economic conditions are the same.