1VF451 Transfer pricing - ZT

Which organization defines the arm’s length principle and other recommendations in its guidelines?. IMF. WTO. World bank. OECD.

One major disadvantage of the Cost Plus Method is. It ignores the cost base. It only applies to financial services. It is too simple to implement. Difficulty in determining gross profit markups.

What is a limitation of the CUP method?. Requires exact data on unrelated party transactions. Cannot be applied in financial services. Is not recognized by OECD. Leads to loss of profit.

Which document provides an overview of the entire multinational enterprises (group)?. Country risk report. Audit report. Master file. Local file.

A common profit level indicator (PLI) in TNMM is. Cash conversion rate. Inventory turnover. Tax rate. Operating margin.

How many traditional transaction methods are recognized by OECD?. Four. Five. Three. Two.

A 'limited-risk manufacturer' usually: Acts under instructions from the principal and assumes minimal risks. Owns key patents and distributes products globally. Provides financial guarantees to other group members. Operates independently in pricing and production.

Resale Price Method is typically applied when: The reseller is a routine distributor. The product is intangible. The reseller adds substantial value. It involves real estate.

Which is NOT a comparability factor in TP analysis?. Economic circumstances. Functions performed. Employee age. Contractual terms.

Which of the following best describes a 'limited-risk distributor'?. A distributor that provides marketing services for a fee. A distributor that bears full market and inventory risk. A distributor owning all intellectual property rights. A distributor that performs sales activities but does not bear market risks.

TNMM is particularly useful when. Both parties own unique IP. Transaction volumes are unknown. Reliable net margin comparables exist. Only gross margins are known.

The arm’s length principle is intended to: Harmonize VAT rates. Prevent money laundering. Ensure fairness in intercompany pricing. Avoid foreign exchange losses.

The resale price method is most appropriate when. The company is loss-making. The reseller does not add significant value. The product is not resold. The manufacturer uses unique intangibles.

Benchmarking in transfer pricing involves: Adjusting for inflation. Calculating interest expenses. Comparing intercompany transactions to similar related transactions. Comparing intercompany transactions to similar unrelated transactions.

Which factor is NOT among the five comparability factors?. Business strategies. Economic circumstances. Political alignment. Contractual terms.

Which of the following would best support a CUP analysis and application of the CUP method?. Projected cash flows. Corporate social responsibility data. Non-financial data. Internal comparable sales to third parties.

Which of the following is a feature of a 'routine entity'?. Assumes significant market and credit risks. Sets group-wide strategy. Develops unique intangible assets. Performs standard functions with low risk.

Which is a part of the OECD’s three-tiered documentation approach?. Master file and Local file. Master file, Local file and Entity charater. Local file, Entity charter and Country-by-Country Report. Master file, Local file and Country-by-Country Report.

The CUP method is most reliable when: Identical or similar uncontrolled transactions exist. Services are intangible. No comparables exist. Products are highly customized.

In a contribution analysis under the profit split method: Profits are split based on relative value of contributions. Cost plus is used as a proxy. All profits are allocated to the lower-risk entity. Residual profits are ignored.

Benchmarking typically uses data from: Stock market indices. Internal audit documents. Government budget reports. Commercial databases of independent companies.

What is the purpose of transfer pricing documentation?. To evade taxes. To standardize salaries. To determine VAT. To demonstrate compliance with the arm’s length principle.

What is the first step in the 9-steps of the comparability analysis?. Determination of years to be covered. Choosing the tax jurisdiction. Understanding the controlled transaction. Calculating the markup.

A 'full-fledged manufacturer' typically: Provides services unrelated to production. Is responsible for strategic decisions, market development, and bears full risk. Operates under the control of a parent and receives cost-plus remuneration. Acts only on behalf of related parties and earns a fixed fee.

Profit Split Method is best used when: It is a financial transaction. Only one party incurs costs. No intangibles are involved. Both parties contribute unique intangibles.

The OECD Guidelines are intended to apply to: Only developing countries. Only offshore jurisdictions. Only EU member states. All OECD and non-OECD countries that adopt them.

Cost Plus Method is based on: Inventory turnover. Benchmarking unrelated party salaries. Sales price minus profit. Costs plus appropriate markup.

The OECD Guidelines were most recently updated in 2022 for the purpose: to change the key principle – arm’s length principle. to introduce the new principle – economic principle. to introduce new topic – Financial transactions. to amend the overall view on the topic of transfer pricing.

The OECD BEPS Action Plan most significantly affected: VAT rates in digital services. Payroll tax treatment. Transfer pricing transparency and substance requirements. Property taxation.

What does the arm’s length principle ensure in transfer pricing?. Transactions between related parties reflect market-based terms. All companies use the same currency. Transactions are always taxed at 30%. Intercompany agreements are always verbal.