Transfer pricing services in Singapore are pretty prominent. However, it is a complex process. From calculation approaches to international regulations, you need to deal with plenty of technicalities in terms of transfer pricing. Nonetheless, what is good about transfer pricing is that its principles and practices are very similar worldwide.

The OECD Transfer Pricing Guidelines mainly provide five primary transfer pricing methods recognised and accepted by almost all tax authorities. These methods are what businesses and authorities use to determine transfer prices. They all examine profits of similar third-party organisations and comparable transactions to reach arm’s length transfer prices.

First, it is essential to note that the five transfer pricing methods are primarily classified into traditional and transactional profit methods. A traditional transaction includes the processes of comparable uncontrolled price, resale price, and cost plus. On the other hand, transactional profit includes comparable profits and profit split methods. Read on to understand more about these primary methods of transfer pricing.

1. Comparable Uncontrolled Price

Comparable uncontrolled price (CUP) is a transfer pricing method that compares the conditions and price of goods or services in a controlled transaction and those in an uncontrolled transaction involving unrelated parties. This method requires comparable data when the uncontrolled transaction meets high comparability standards. Simply put, the transactions need to be similar to be comparable.

The CUP method is recommended by the OECD whenever plausible. It is the most reliable and effective method for applying the arm’s length principle to controlled transactions. Nonetheless, since it can be challenging to determine a transaction that is properly akin to the controlled transaction, this method is often used only when there is a substantial amount of available data to make a valid comparison.

2. Resale Price

Under the resale price method (RPM), the resale price of a good or service is decreased with a gross margin, which is identified by making a comparison of the gross margins in similar transactions carried out by comparable but unrelated companies. The costs of buying the product, like customs duties, are then subtracted from the total. The resulting number is the arm’s length price for a controlled transaction between related companies.

RPM is a handy method for determining transfer prices when properly comparable transactions are available. This is because third-party sale prices may be accessed with relative ease. However, comparables with constant accounting methods and economic circumstances are needed under the RPM. The distinctiveness of each transaction makes it quite hard to meet the requirements of these transfer pricing methods.

3. Cost Plus

The cost plus method (CPLM) is done by comparing a company’s gross profits to its total cost of sales. It begins by determining the costs the supplier incurred in a controlled transaction between related companies and then adding a market-based markup to the whole to account for a proper profit. An organisation needs to determine the markup costs for similar transactions between unrelated companies to use this method.

When it comes to evaluating transfer prices for ordinary low-risk activities like the manufacture of tangible products, CPLM is considered a beneficial approach. For many companies, this approach is relatively easy to understand and implement. However, the disadvantage of CPLM is the lack of accounting consistency and comparable data. In many instances, there are simply no adequate, comparable transactions and companies that can be used to obtain an accurate result.

4. Transactional Net Margin

The transactional net margin method (TNMM) is known as the comparable profits method (CPM) in the United States and European countries. Under this transactional profit method, a company’s net income margin on its controlled transactions is compared with the returns derived by a company that engages in uncontrolled transactions. In other words, the TNMM analyses the net income in relation to an appropriate base, such as sales/revenues, costs, or assets, that a taxpayer registers from a controlled transaction.

A comparison is then made between the taxpayer’s pre-tax profit margin and an array of results from a chosen group of uncontrolled taxpayers. If the taxpayer’s results do not go beyond the arm’s length range calculated from the comparable enterprises, then they are considered as arm’s length results under the definition of the arm’s length principle. Generally, the TNMM is regarded as the most widely used transfer pricing method.

5. Profit Split

The profit split method (PSM) is commonly used by two companies that operate under the same label and reach an agreement to split their profits. This method analyses the terms and conditions of interconnected controlled transactions by determining the division of profits between third parties carrying out similar transactions. Among the significant benefits of this method is that it accounts for profit allocation not on a transactional basis but in a holistic manner.

PSM can help deliver a more accurate and broader assessment of a company’s financial performance. This is particularly beneficial when managing intangible assets like intellectual property or in scenarios where numerous controlled transactions coincide. However, since it is only applicable to highly integrated enterprises that equally contribute value and assume risk, PSM is often considered a last resort approach.


Overall, the five primary transfer pricing methods have advantages and downsides. Knowing their pros and cons and the ideal situations to which they apply will help business owners determine the most appropriate method for determining transfer prices. With that said, if you are an entrepreneur not so familiar with the ins and outs of transfer pricing, your best course of action is to hire reliable transfer pricing services in Singapore, particularly those offered by Max Lewis.

Aside from transfer pricing, Max Lewis provides a wide array of trusted corporate services, from local and international tax planning to business valuation and GST Assisted Self Help Kit. With the help of our valuable and expert services, you can guarantee that every aspect of your business is carried out accurately, seamlessly, and efficiently. Do not hesitate to enquire with us anytime to find out more about our best offers.

*The above represent our views and opinions and does not necessarily reflect the position of any entities mentioned.