There will be new explanations on the cost-plus method

The draft of the new Explanations is 21 pages long. In the document, the MF focuses on explaining the practical aspects related to the application of the cost-plus method. Among the issues addressed are the scope of application of the method, the determination of the cost base and the profit mark-up, the criteria for comparability of transactions and entities, the strengths and weaknesses of the method or the difficulties and errors in applying it.

Cyprian Werykowski, tax adviser, director at Thedy & Partners, recalls that the cost-plus method involves setting the price in a transaction based on the costs associated with that transaction plus a market mark-up taking into account the functions performed, the risks incurred and the assets involved by the parties.

– The OECD Guidelines classify the cost-plus method as one of the traditional methods, which is most commonly used to set prices in transactions for the provision of services or the sale (production) of goods. Interestingly, the cost-plus method, while it is very often – due to its simplicity – used to determine the transfer price, is relatively rarely used to verify it. The reason for this is the frequent lack of comparative transaction data. The cost-plus method in this respect is often confused with the net transaction margin method, adds Cyprian Werykowski.