The CUP Method compares prices charged for property or services in controlled transactions between related parties to prices charged in uncontrolled transactions between unrelated companies to adjust prices, as necessary, for tax and transfer pricing purposes.
Key Features of CUP Method
- It examines whether related-party prices for goods match those realized under similar transactions devoid of affiliation influence
- Strict criteria ensure transactions utilized as comparables have no distinguishable differentiators affecting price
- Financial data from public databases helps substantiate purported third-party market benchmarks
- CUP necessitates deep understanding of market dynamics affecting intercompany pricing realities
Example of CUP Method
A multinational’s internal audit unearthed minor disparities in parent-subsidiary prices for customized equipment against deals among industry peers without ties, warranting modest transfer pricing adjustments to comply with CUP requirements.
Key Takeaways
When applicable uncontrolled comparables substantiate related-party pricing reflects arm’s length standards, CUP offers tax authorities and taxpayers a reliable transfer pricing analysis method consistent with fair market valuations.