Transfer pricing is not an exact science. There will be
occasions when, even if a method is applied correctly, or more than
one method is applied correctly, a range of figures will be
produced. These figures may be no more reliable (or unreliable)
than the arm's length answer.
Differences in the figures that make up the range may result
from the fact that the application of the arm's length principle
(and the application of the methods in the OECD Transfer Pricing
Guidelines) may produce only an approximation of the conditions
that would have existed between independent parties. The extent of
the range may reflect the fact that independent enterprises
engaging in comparable transactions in comparable situations may
agree different prices.
It is also inconceivable that every comparable transaction
examined will have exactly the same degree of comparability. This
will be the case even if all the transactions could be said to be
comparable.
Where the way in which a method has been applied results in a
wide range of figures, this may indicate that the data used to
construct the range is unreliable. In particular, it may mean that
some of the transactions (or more likely companies) are not truly
comparable.
The OECD Transfer Pricing Guidelines recognise that where a
genuinely arm's length range of figures has been produced, it could
be argued (in fact it would have to be so argued before it was
accepted) that any point in the range is the arm's length answer.
To the extent that it is possible to distinguish between points in
the range, adjustments should be made to the point within the range
that best meets the facts and circumstances of the particular
controlled transaction. There should be a diligent attempt then to
locate the proper place within even a properly arm's length range
of figures.
See the OECD Transfer Pricing Guidelines Para 1.45 to
1.48.
