Recent Developments on the Profit Split Method

01 August 2017
Sébastien Gonnet

The Institute for Austrian and International Tax Law of Vienna University of Economics and Business, through its Transfer Pricing Center, has recently announced the publication of its latest book, Transfer Pricing Developments around the World 2017 (Storck/Petruzzi (eds.) Wolters Kluwer).

NERA Director Sébastien Gonnet contributed a chapter to the book: “Recent Developments on the Profit Split Method.” Mr. Gonnet describes the economic circumstances under which the Profit Split Method should apply, in the context of pricing intercompany transactions. Though more complex to apply than other transfer pricing methods, the Profit Split Method is appropriate in circumstances of highly integrated operations. It is also appropriate when contributions by both parties to a transaction are unique and valuable: it has for instance used for establishing royalty intangible licenses in an intra-group context, notably in the absence of direct market evidence on similar the remuneration of similar intangibles. Circumstances of risk sharing between related companies can also qualify for the application of the Method. The Book Chapter is published in a context where the OECD will issue soon its final guidance on the subject, as part of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.  Note that the next (soon-to-be published - in 2018) Book on Transfer Pricing by the Institute for Austrian and International Tax Law will include a Chapter, written by Mr. Gonnet, on the application of the Profit Split Method.