Transactional Net Margin Method (TNMM) for Transfer Pricing2012

-          in (Malaysian) IRBM Transfer Pricing Guideline 2012

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Cases applicable: used only when traditional methods cannot be reliably applied or exceptionally cannot be applied at all

Similar to the cost plus and resale price methods in the sense that it uses the margin approach which examines the net profit margin relative to an appropriate base such as costs, sales or assets attained by the MNE from a controlled transaction.

Since net margins (unlike gross margins or prices) tend to be significantly influenced by various factors other than products and functions (e.g. competitive position, varying cost structures, differences in cost of capital etc), it is stressed that usage of TNMM be confined to cases where functions have a high degree of similarity, so as to eliminate the effects of these other factors.