Benchmarking studies or comparable search studies are used in testing the arm’s length nature of related party transactions. Benchmarking is recommended as part of the Transfer Pricing methodologies described under the OECD Transfer Pricing Guidelines. The most straightforward approach would be to identify non-related transactions that are similar to the related-party transactions and compare the outcome. However, very often data on sufficiently comparable non-related party transactions is not available. In those cases, database benchmarking is recommendable.
With benchmarking, we search third-party databases containing company data (including financial fundamentals) for independent companies performing similar functions, and in similar markets as the company under-study. The idea is to identify a reasonably large sample of comparable companies, doing so to be able to statistically create a range of comparable results for transaction that is under-study.
Although, the general theory around benchmarking is pretty simple, practice often proves that it is not that straightforward. This is where Transfer Pricing Benchmarking can assist irrespective of whether the benchmark is for your company, or as a service to your firm under your own brand. Tytho’s experts can help you not only with performing the benchmarks, but also with putting them in context and identifying any particularity that should be taken into account.