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8/24/2012

Resale price method (RPM) for Transfer Pricing 2012


-          in (Malaysian) IRBM Transfer Pricing Guideline 2012
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Cases applicable: Only applied for end product distributor to [buy] and [selling] of product to different parties.

The usefulness of the method largely depends on how much added value or alteration the reseller has done on the product before it is resold, or the time lapse between purchase and onward sale. , RPM focus more on functions performed compared to product characteristics.

The starting point in the resale price method is the price at which a product that has been purchased from an associated enterprise is then resold to an independent enterprise.

Formula,
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Arm’s length price = Resale price – (Resale price x Resale price margin)

* Resale price margin = (Sales price - Purchase price)/Sales price

Note: * Resale price margin must be comparable to margins earned by other independent enterprises performing similar functions, bearing similar risks and employing similar assets.
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Comparability Analysis
Factors which may influence the resale price margin and other considerations when performing a comparability analysis include:-

a.       The functions or level of activities performed by the reseller
b.      The degree of added value or alteration the reseller has done
c.       Employment of similar assets
d.      Product similarities
e.       Differences in the way business is managed may have an impact on profitability
f.       A resale price margin will be more accurate if it is realized within a short time lapse (longer time lapse may give rise to changes in the market, exchange rates, costs etc.)
g.       Exclusive rights given to reseller to resell the products
h.      Differences in accounting practices

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