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Transfer Pricing & BEPS

Amazon Lesson 1: The CUT Method of Transfer Pricing is Not Dead

By May 4, 2017August 8th, 2023No Comments
method of transfer pricing

Last week we published a blog detailing the Amazon / IRS dispute and ultimate decision. This week we’ll dig into the first of three lessons we can learn from the  transfer pricing professionals who reviewed the case.

The Amazon case is not the only high-profile tax case involving intangible asset valuation in the last few years (think Veritas and Medtronic). One commonality between these cases is the use of the CUT (or CUP) method for transfer pricing as the Court’s preferred methodology. The lesson here? Pursuing comparable agreements and rates is worthwhile, even when not perfect, so long as they are defensible.

In order to properly apply the CUT method to their analyses, the petitioner, respondent, and Court all used ktMINE royalty rate and agreement data.

Streamline Your CUT with ktMINE Data

When comparables exist, ktMINE’s intuitive search filters give users quick access to agreement summaries. Plus, the full text is available to confirm comparability. In addition to finding intangible license agreements such as:

  • trademark license agreements;
  • patent license agreements; and
  • software license agreements,

the ktMINE database includes non-standard agreement types, including:

  • benchmark distribution;
  • sales agent;
  • buying agent;
  • financial services; and
  • contract manufacturing activities.

OECD Stance On the Existence of Comparables

The first step in evaluating the CUT method of transfer pricing is confirming the existence of comparables; covering not only the computation of arm’s length pricing of a transaction, but also provide proof that third parties would agree to similar contract terms. The OECD recently stated the importance of confirming the arm’s length nature of a transaction outside of the pricing of the transaction.

“In many instances, transfer pricing rules operate to consider whether a transaction has occurred at all, or has occurred in a way that is substantively different from that which is described in contracts or documentation”. ¹

ktMINE is uniquely positioned to help evaluate your transaction structures and pricing. We offer access to over 115,000 agreements to confirm the arm’s length nature of the transactions.

Contact us today to learn how you can apply our data and expertise to your next analysis.

Read more about this lesson in our article Amazon and its lesson for transfer pricing professionals in International Tax Review.


(1) Page 6, OECD, IMF, UN, WBG, January 2017. A Toolkit for Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses

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