Authors: Nupur Jalan, Elvira Misquith; Comparability Adjustments in Transfer Pricing and the Need for a Digital Data Intensity Adjustment; Intertax Volume 49, Issue 6/7 (2021) pp. 532 – 548
A comparability analysis forms the core of transfer pricing and involves the analysis of controlled transactions and the search for the right comparable. However, difficulties often arise in exactly matching the identified comparable to the controlled transaction. Hence, various comparability adjustments (such as the accounting, balance sheet, etc.) are undertaken primarily to eliminate differences and to achieve greater comparability between the comparable transactions/companies selected and the controlled transactions/companies under analysis.
It is pertinent to mention that many of the commonly used adjustments cannot entirely take care of all of the functional and economic variations pre-existing between the comparable and the controlled transactions (one such problem area is the functional variation that occurs due to rapid digital and technological advancements and changes). The authors, therefore, believe there is a need to devise and implement a change (i.e., digital data intensity adjustment that could account for the differences between comparable companies due to these digital/data developments.
In the context of the above background, the paper summarizes some of the existing comparability adjustments; thereafter, it highlights the need for a new adjustment to keep pace with the growth of the digital/data economy along with a case study. Further, certain broad frameworks for this new adjustment are discussed.
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