Economic Benchmarking
Economic benchmarking analysis is a technique for establishing the arm's length profits of a controlled entity by reference to the profitability of one or more uncontrolled entities determined to be comparable to the controlled entity of interest with respect to functions performed, assets employed, and risks taken.
Benchmarking analyses are typically used to calculate the routine profits earned by parties engaged in controlled transactions and, by extension, to determine the "non-routine" residual profits attributable to profit drivers, which cannot be benchmarked and are unique to the controlled transaction at hand.
Benchmarking analyses are commonly performed to determine arm's length profits for routine manufacturing, distribution, or service functions.
Often, to improve the reliability of profit benchmarks derived from comparables data, certain adjustments are made to the financial data of the comparables and/or of the controlled parties in question.
NERA's documentation for a benchmarking analysis typically takes the form of a comprehensive report, providing a clear audit trail and a sourcing of information used to justify the selection and further analysis of the comparables.
Manufacturing Evaluations
Benchmarking of manufacturing activities is commonly performed in the context of applying profit-based methods for planning and compliance purposes, supply chain restructuring, and intangibles and business valuation. NERA's approach to manufacturing activities benchmarking includes a variety of reliability-enhancing adjustments and comprehensive documentation capabilities, including treatments suitable for different transactional contexts such as contract manufacturing/tolling and limited risk supply arrangements.
Distribution Evaluations
Benchmarking of distribution activities is commonly performed in the context of applying profit-based methods for compliance and planning purposes, supply chain restructuring, and valuation studies. NERA's approach to distribution activities benchmarking includes a variety of reliability-enhancing adjustments and comprehensive documentation capabilities, including treatments suitable for different transactional contexts such as buy-sell, drop shipment, and commissionaire arrangements.
Services Evaluations
Typical intercompany services subject to benchmarking studies include contract activities for intangibles development such as research and development, engineering, marketing, financial services such as loans and guarantee contracts, and other miscellaneous management and administrative activities whose benefits are shared by affiliates in different taxing jurisdictions. To facilitate benchmarking analysis of services, NERA has created a proprietary database of comparables for a variety of service activities and transactional contexts.
