You know what grinds my gears – industry analysis

424px-Report-edit_svgYou know what grinds my gears? An industry analysis that is not linked to the rest of a transfer pricing document. I mean, why do an industry analysis at all if you are not going to link it to the rest of the TP document. You might as well save the time for doing the industry analysis and go home early.

As you know an industry analysis is supposed to provide information that enables the reader to better understand the industry and the environment in which the tested party operates. This means it should at least be linked to the financial analysis but preferably also to the functional analysis.

A good report should show how the functions of a company fall within the industry (i.e. value creation) and how its financial position may be (or was) influenced by the industry.

You know what grinds my gears – CPM v TNMM

You may have seen from my updated LinkedIn profile that I have changed jobs and that is part of the reason why I have not posted in a while. Another reason is that the transfer pricing world has just become so much more evolved lately and there is just so much to do to keep up with it all.

I thought in order to keep this blog fun but yet applicable to a transfer pricing enthusiast such as yourself I would start a “grinds my gears” section. Please note as always these are my views and opinions and not those of my employer.

gearYou know what grinds my gears? When people use the terminology Cost Plus for either a method or PLI interchangeably. As you know the one is a transfer pricing method (i.e. Cost Plus Method / CPM) and the other is a profit level indicator used as part of another method, the Transactional Net Margin Method (TNMM). Yes you may be applying a cost plus principle for both (when selecting a return on total cost / mark-up on total cost for the TNMM) but the one is at a gross level and the other at a net level. Too many times have I seen this confusing too many people.

Please note the CPM in this context is not the comparable profits method as per the U.S. rules