2.3 Comparability Analysis


A comparability analysis is a pre-requisite in the application of all transfer pricing methods that conform to the arm's length principle. This involves comparing conditions in a controlled transaction with those in an uncontrolled transaction.


A controlled transaction in a comparability analysis is the transaction that has been identified as the transaction where pricing may not be at arm's length. An uncontrolled transaction may be:

(a) a transaction between the tested party and an independent party conducted under terms and circumstances similar to the controlled transaction (internal comparable); or

(b) a transaction between two independent parties under similar terms and circumstances (external comparable).


An uncontrolled transaction is deemed comparable if the economically relevant characteristics or comparability factors identified in the commercial or financial relations (as mentioned in paragraph 2.2.5) of that transaction with that of a controlled transaction are sufficiently similar.


Where there are differences between an uncontrolled transaction and a controlled transaction, the following conditions must be met in order to be deemed comparable:

(a) none of the differences between the transactions being compared or between the enterprises undertaking those transactions could materially affect the price or cost charged or paid or the profits arising from those transactions in an open market; or

(b) reasonably accurate adjustments can be made to eliminate the material effects of such differences.