Information Overlooked: When Segment Reporting Can Enhance Reliability of a Transfer Pricing Analysis

02 October 2014
By Yuko Saito, et al.

Transfer pricing practitioners and tax authorities often overlook potentially valuable and reliable information in the form of comparables' segment reporting when conducting benchmarking analyses. While public companies make segment disclosures on Form 10-K, filed to the US Securities and Exchange Commission, or in annual reports, screening criteria applied to select comparable companies typically do not include or apply to reportable segments.

In this article from Bloomberg BNA's Tax Management Transfer Pricing Report, current NERA Vice President Yuko Saito, former NERA Vice President Nihan Mert-Beydilli, and former Senior Consultant Emre Furtun explore the merits of comparable company segmentation as a comparability adjustment for comparable company benchmarks. When sufficient data are available, segmentation potentially enhances the comparability of benchmarks and improves the reliability of arm's-length evaluation of controlled transactions. As is true with all aspects of transfer pricing, use of segment data is fact-driven, and there is no universal standard on how to apply segment information as a comparability adjustment; thus, in the authors' view, its use should be evaluated on a case-by-case basis.