| COVERED
TRANSACTIONS AND TRANSFER PRICING METHOD (TPM) |
| 1.Covered Transactions. |
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[Define the Covered Transactions.]
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| 2.TPM. |
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{Note: If appropriate, adapt
language from the following examples.} |
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[The Tested Party is .] |
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• CUP Method |
| The TPM is the comparable uncontrolled
price (CUP) method. The Arm’s Length Range of the price charged for
is between and per unit.
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• CUT Method |
| The TPM is the CUT Method. The Arm’s
Length Range of the royalty charged for the license of is between % and %
of [Taxpayer’s, Foreign Participants’, or other specified party’s]
Net Sales Revenue. [Insert definition of net sales revenue or other royalty
base.]
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• Resale Price Method (RPM) |
| The TPM is the resale price method (RPM).
The Tested Party’s Gross Margin for any APA Year is defined as follows:
the Tested Party’s gross profit divided by its sales revenue (as those
terms are defined in Treasury Regulations sections 1.482-5(d)(1) and (2))
for that APA Year. The Arm’s Length Range is between % and %, and
the Median of the Arm’s Length Range is %.
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• Cost Plus Method |
| The TPM is the cost plus method. The
Tested Party’s Cost Plus Markup is defined as follows for any APA Year:
the Tested Party’s ratio of gross profit to production costs (as those
terms are defined in Treasury Regulations sections 1.482-3(d)(1) and (2))
for that APA Year. The Arm’s Length Range is between % and %, and the
Median of the Arm’s Length Range is %.
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• CPM with Berry Ratio PLI |
| The TPM is the comparable profits method
(CPM). The profit level indicator is a Berry Ratio. The Tested Party’s
Berry Ratio is defined as follows for any APA Year: the Tested Party’s
gross profit divided by its operating expenses (as those terms are defined
in Treasury Regulations sections 1.482-5(d)(2) and (3)) for that APA Year.
The Arm’s Length Range is between and , and the Median of the Arm’s
Length Range is .
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• CPM using an Operating Margin PLI |
| The TPM is the comparable profits method
(CPM). The profit level indicator is an operating margin. The Tested Party’s
Operating Margin is defined as follows for any APA Year: the Tested Party’s
operating profit divided by its sales revenue (as those terms are defined
in Treasury Regulations section 1.482-5(d)(1) and (4)) for that APA Year.
The Arm’s Length Range is between % and %, and the Median of the Arm’s
Length Range is %.
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• CPM using a Three-year Rolling Average
Operating Margin PLI |
| The TPM is the comparable profits method
(CPM). The profit level indicator is an operating margin. The Tested Party’s
Three-Year Rolling Average operating margin is defined as follows for any
APA Year: the sum of the Tested Party’s operating profit (within the
meaning of Treasury Regulations section 1.482-5(d)(4) for that APA Year and
the two preceding years, divided by the sum of its sales revenue (within the
meaning of Treasury Regulations section 1.482-5(d)(1)) for that APA Year and
the two preceding years. The Arm’s Length Range is between % and %,
and the Median of the Arm’s Length Range is %.
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• Residual Profit Split Method |
| The TPM is the residual profit split method.
[Insert description of routine profit level determinations and residual
profit-split mechanism].
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[Insert additional provisions
as needed.]
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| 3.Application of TPM. |
| For any APA Year, if the results of Taxpayer’s
actual transactions produce a [price per unit, royalty rate for the Covered
Transactions] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating
Margin, Three-Year Rolling Average Operating Margin for the Tested Party]
within the Arm’s Length Range, then the amounts reported on Taxpayer’s
U.S. Return must clearly reflect such results.
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| For any APA year, if the results of Taxpayer’s
actual transactions produce a [price per unit, royalty rate] [or] [Gross Margin,
Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average
Operating Margin for the Tested Party] outside the Arm’s Length Range,
then amounts reported on Taxpayer’s U.S. Return must clearly reflect
an adjustment that brings the [price per unit, royalty rate] [or] [Tested
Party’s Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin,
Three-Year Rolling Average Operating Margin] to the Median.
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| For purposes of this Appendix A, the “results
of Taxpayer’s actual transactions” means the results reflected
in Taxpayer’s and Tested Party’s books and records as computed
under U.S. GAAP [insert another relevant accounting standard if
applicable], with the following adjustments:
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| (a) [The fair value of stock-based compensation
as disclosed in the Tested Party’s audited financial statements shall
be treated as an operating expense]; and
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| (b) To the extent that the results in
any prior APA Year are relevant (for example, to compute a multi-year average),
such results shall be adjusted to reflect the amount of any adjustment made
for that prior APA Year under this Appendix A.
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| 4.APA Revenue Procedure Treatment. |
| If Taxpayer makes a primary adjustment
under the terms of this Appendix A, Taxpayer may elect APA Revenue Procedure
Treatment in accordance with section 11.02(3) of Revenue Procedure 2006-9.
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| [Insert additional provisions
as needed.]
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