Best method rule

Tax Glossary Definition

Best method rule

Best Method Rule – A principle in transfer pricing that requires a taxpayer to apply the method that most accurately determines the arm’s length price for transactions between related parties. The appropriate method is chosen based on which provides the most dependable results, taking into account the characteristics of the transaction, the quality of available data, and the degree of comparability.

Example: When deciding between the Comparable Uncontrolled Price (CUP) method and the Transactional Net Margin Method (TNMM), a company must adopt the approach that most reliably reflects market-based pricing for its intercompany dealings.

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