The transfer pricing comparison method is a commonly used method for assessing transfer prices for transactions between related entities. This is a direct way of assessing the compliance of transfer prices with the market value principle, as it involves comparing the prices associated with transfers of controlled goods and services with those of uncontrolled transfers of goods and services.

To make such a comparison, verifying the comparability of controlled and uncontrolled transactions is crucial. This verification involves analyzing the similarity between the products/services involved in the compared transactions and the economic aspects that can significantly influence those transactions.

However, certain differences between the compared transactions are accepted if at least one of the following conditions is met: the differences between the transactions and the compared entities do not materially affect the price or reasonable adjustments can be made to eliminate these differences.

Uncontrolled prices can be identified when one of the related parties involved in the transaction enters into similar transactions with an independent entity, under comparable commercial conditions, including comparable quantities, at the same level of the production and distribution chain, and under similar conditions of delivery and payment, called “internal comparables”. Also, when third parties transact identical or similar goods or services under conditions comparable to related party transactions, these transactions are referred to as “external comparables”.

In general, the price comparison method is an appropriate approach to pricing under the market value principle in two distinct circumstances. One of the circumstances would be determined by the sale of traded commodities on a market, provided that the comparable controlled transaction and uncontrolled transaction take place in similar contexts, including at the same level of the commercial chain. An example would be selling to a distributor or retailer. The second circumstance can be determined by ordinary financial transactions, such as loans. In such cases, market prices, such as commodity prices or interest rates, may be public and serve as a reference for comparison. However, other databases that include loan contracts, such as LoanConnector, can be used for loan analysis.

In practice, this approach is used to assess compliance with the market value principle in respect of transactions involving the payment of fees, royalties, rents or interest.

The price comparison method involves the following steps: establishing the price to be compared, the source of information regarding market transactions, respectively the interpretation of the results, respecting the relevant legal and fiscal requirements. It is important to identify similar transactions involving comparable goods or services between independent entities.

Although the price comparison method could be used in various trading situations, the product/service comparability condition required to apply it reliably is extremely rigorous. Any difference between products / services can significantly influence the price of the transaction, and sometimes it is difficult to make adjustments precise enough to compensate for these differences.

Therefore, the price comparison method requires a careful assessment of every aspect of intra-group transactions and a deep understanding of the market in which the company involved in those transactions operates. It is also advisable to involve tax consultants specialized in the field of transfer pricing to ensure compliance with tax regulations and international practices in the field.