The article provides an in-depth analysis of the “Best Method Rule” proposed (and later adopted) under the US Internal Revenue Code Section 482. The authors discuss their view of the best method rule as the unifying principle of the US transfer pricing regulations and offer detailed analysis on the application of the rule. Relying on the economic equilibrium concept, the article discusses practical solutions to determining the best pricing method, including:

• Deciding which market evidence to use;
• Selecting comparables; and
• Measuring comparable performance.

The article emphasizes, through the use of a case example, multidisciplinary approach that is required in establishing effective and objective determination of arm’s length pricing.

This article was published in Worldwide Tax Daily, Special Reports.