{"id":426,"date":"2015-06-10T15:23:23","date_gmt":"2015-06-10T15:23:23","guid":{"rendered":"https:\/\/wtpadvisors.com\/tp-blog\/?p=426"},"modified":"2024-02-12T18:02:57","modified_gmt":"2024-02-12T18:02:57","slug":"wtpadvisors-com-its-all-about-the-data-php","status":"publish","type":"post","link":"https:\/\/wtpadvisors.com\/tp-blog\/wtpadvisors-com-its-all-about-the-data-php\/","title":{"rendered":"It\u2019s All About the Data"},"content":{"rendered":"

By Kash Mansori, WTP Advisors
\nPosted: June 10, 2015<\/p>\n

A colleague recently came to me with a question about where to find a specific type of data needed for a transfer pricing analysis. That got me to thinking about how dependent our work is on the type of data that we have available to us. And the issue of data availability helps to explain one of the great paradoxes of transfer pricing analyses: most transfer pricing studies actually say nothing about transfer prices.<\/p>\n

The goal of a transfer pricing study is to ascertain whether the transfer prices applied to transactions between two related companies are consistent with the \u201carm\u2019s length standard\u201d; that is, whether the prices are consistent with what we would have observed if the two companies had been unrelated. In theory, therefore, one would think that a transfer pricing analysis should involve the identification of market (or \u201carm\u2019s length\u201d) prices against which to benchmark the transfer prices applied to transactions between related companies.<\/p>\n

<\/a>Yet in practice it is indeed quite rare to see such direct price comparisons in a transfer pricing analysis. Instead, most transfer pricing studies take a \u201cprofits-based\u201d approach in which it is the overall profitability of a company that is examined in detail; actual transfer prices are often never even mentioned in our studies.<\/p>\n

This is largely due to data constraints. Many transactions between related companies are transactions that we never actually observe between unrelated companies. And even if similar transactions do take place between unrelated companies, it\u2019s typically impossible to obtain price data that\u2019s detailed enough on transactions that are comparable enough to make direct comparisons.<\/p>\n

So instead, we are forced to do what economists have always done: we\u00a0look where the light is<\/a>.<\/p>\n

While we don\u2019t have data on the specific prices that Company X obtained for selling its goods and services to customers, we do often have very good data on the revenue, costs, and profitability of Company X \u2013 particularly if Company X is a public company. And since we have good data on profitability, that\u2019s where we typically focus our attention in a transfer pricing analysis. If the related companies that are transacting with each other each demonstrate profitability similar to what we observe among independent companies, that provides indirect evidence that those related companies were not using transfer prices to shift profits between them.<\/p>\n

So it turns out that the data that we have available to us plays an enormous role in determining the methods and types of transfer pricing analyses we can do. It\u2019s not a coincidence that transfer pricing economists end up spending a ton of money \u2013 tens or even hundreds of thousands of dollars per year \u2013 just to obtain good data. In transfer pricing, as in so many other types of economic studies, the data is the driver\u2019s seat.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Kash Mansori, WTP Advisors Posted: June 10, 2015 A colleague recently came to me with a question about where to find a specific type of data needed for a transfer pricing analysis. That got me to thinking about how dependent our work is on the type of data that we have available to us. […]<\/p>\n","protected":false},"author":6,"featured_media":518,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13,1],"tags":[],"class_list":["post-426","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-data","category-transfer-pricing"],"yoast_head":"\nIt\u2019s All About the Data -<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/wtpadvisors.com\/tp-blog\/wtpadvisors-com-its-all-about-the-data-php\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"It\u2019s All About the Data -\" \/>\n<meta property=\"og:description\" content=\"By Kash Mansori, WTP Advisors Posted: June 10, 2015 A colleague recently came to me with a question about where to find a specific type of data needed for a transfer pricing analysis. 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