Resale price & cost plus methods — how much of this can I do myself?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: resale price suits a distributor that adds no significant value; cost plus suits a manufacturer or service provider under low risk.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
When is resale price better than a net margin method?
When the tested party is a distributor adding no significant value, and when its gross margin can be compared like for like with the comparables. That second condition does the work. Resale price tests the margin closest to the transaction, which makes it the more direct measure, but it holds only if both sides classify costs the same way: what sits in cost of sales and what sits below it. Where the accounts cannot be reconciled to the comparables on that basis, a net margin method is often the better-evidenced choice, because operating margin is far less sensitive to where a cost was recorded.
Why does our gross margin not compare with the comparables?
Most often because the comparison is not measuring the same thing. Freight, warehousing, inbound duty, packaging, warranty provisions and distribution payroll are treated as cost of sales by some companies and as operating expense by others, and nothing in a set of published accounts makes that visible. A difference in classification moves gross margin without any difference in the underlying business. Before concluding that the pricing is wrong, reconcile the tested party's accounts to the classification the comparables appear to use, and record the adjustments. That reconciliation is part of the documentation, not preparation for it.
What is the difference between resale price and cost plus?
They approach the same gross margin from opposite ends. Resale price starts at the price charged to an independent customer and works back by deducting a gross margin, which gives the arm's length purchase price from the related supplier, and it suits a distributor. Cost plus starts at the costs the supplier incurred and adds a gross mark-up, giving the arm's length sale price, and it suits a manufacturer or service provider operating under low risk. The tested party differs and the direction differs. The sensitivity to accounting classification is the same in both.
Does cost plus work for a contract manufacturer?
It is the natural fit where the manufacturer works to another party's specification, does not own the product design, and does not carry market or inventory risk. Two things decide whether it holds up. The first is whether the contracts and the actual conduct match that description, because a manufacturer bearing the cost of unsold output is not operating under low risk, whatever the agreement says. The second is the cost base: what belongs in it, how items passed through are treated, and whether the comparables build their cost of sales on the same footing.
Which costs belong in the cost base for cost plus?
The direct and indirect costs of performing the activity: materials, production labour, and the manufacturing or service overheads that support it. The judgement calls sit at the edges. Whether a cost is genuinely attributable to the activity, whether items passed through without the party adding value should carry a mark-up at all, and where costs incurred for the group rather than for the activity are excluded. Whatever is decided, the cost base has to be built on the same basis as the comparables' cost of sales, and the basis has to be written down so that next period's calculation follows the same rule.
Our accounts put freight in operating expenses, does that matter?
For a gross margin method it matters a great deal. Freight recorded below the gross margin line leaves a higher gross margin than the same business would show with freight in cost of sales, and the comparison against companies classifying it the other way is then wrong by the whole of that amount. The fix is not to change the accounts. It is to document the classification, adjust either the tested party or the comparables onto a common basis, and record the adjustment in the file. If the adjustment cannot be made reliably, that is an argument for testing at the operating margin instead.
What is OECD Pillar Two?
A global minimum effective tax for large multinational groups, delivered through top-up taxes rather than a single global rate. Where a group's effective rate in a jurisdiction falls below the agreed minimum, the shortfall is collected — by the parent jurisdiction under the income inclusion rule, by the source jurisdiction under a domestic top-up, or as a backstop by other jurisdictions. Canada has enacted implementing legislation. The compliance burden is data, long before it is tax. See BEPS and Pillar Two.
What is the arm's length principle?
The standard that a transaction between related parties should be priced as it would have been between independent ones dealing at arm's length. It is the test every major transfer pricing regime applies, and it is evidenced by comparison — finding independent transactions or companies genuinely similar in function, risk and assets, then showing your pricing falls within the range they produce. That comparison is what a benchmarking study documents. See benchmarking study.
