Management fee allocation modeller
Split a cost pool by headcount, revenue and assets and compare the keys.
Open itPaste the margins from your comparable search, type the tested party margin, and this builds the range the way a study shows it: sorted sample, quartiles by interpolation, the interquartile range, and the distance to the nearer edge.
The comparable set
Percentages, in whatever profit level indicator your study uses. Signs are respected, so a loss-making comparable goes in as a negative.
%
The same indicator, on the same basis, for the entity being tested.
Where the tested margin sits
—
Comparables in the set —
Inside the interquartile range —
Inside the 35th to 65th percentile band —
Minimum—
Lower quartile—
35th percentile—
Median—
65th percentile—
Upper quartile—
Maximum—
Interquartile range, in points—
Arithmetic mean—
Full spread, in points—
Distance to the range, in points—
Adjustment to the nearer edge, in points—
Adjustment to the median, in points—
What a range is, and why the quartiles rather than the whole set
A comparable search never produces one number. It produces a scatter, and the arm's length principle accepts that a range of results can all be arm's length. The question is which part of the scatter to accept. Using the full range from minimum to maximum lets a single odd company set the boundary, so the convention is to narrow it — most commonly to the interquartile range, the middle half of the sample.
The quartiles here are computed by linear interpolation on the sorted sample, which is the method a spreadsheet's inclusive percentile function uses and the one most studies show their working in. The 35th to 65th percentile band is printed alongside it because some jurisdictions use that narrower band instead. Which one applies to you is a matter of local rules, not of statistics.
Reading the result, and the adjustment that follows
If the tested margin is inside the range, the range test produces no adjustment. That is not the same as saying the position is safe: the comparables themselves, the profit level indicator and the characterisation of the tested party are all still open, and they are what an audit usually attacks first.
If it is outside, the size of the adjustment depends on the rule. Some regimes adjust to the nearer edge of the range; others adjust to the median regardless of which side you fell out on. Both figures are printed, and the difference between them is often larger than the argument about the comparables.
Worked example
Ten comparables produce net cost plus margins from 2.1% to 8.6%. The tested entity, a captive service provider, returned 3.0%.
- Sorted, the sample gives a lower quartile just under 4% and an upper quartile just over 6%, with the median between them.
- 3.0% sits below the lower quartile, so the range test bites and the entity is outside.
- The adjustment to the nearer edge is under a point. The adjustment to the median is more than double that.
Delete the two lowest comparables and re-run it. The quartiles move, the tested margin may come inside, and you have just demonstrated why the comparable set is the real argument.
What this calculator assumes
- Quartiles are computed by linear interpolation on the sorted sample — the inclusive percentile method. Some regimes and some software use an exclusive method and will differ slightly on small samples.
- The 35th to 65th percentile band is shown because some jurisdictions require it rather than the interquartile range. This tool does not decide which applies to you.
- Nothing here tests comparability. A sample that passes the arithmetic can still fail on functions, contractual terms, markets or accounting basis.
- Multi-year averaging, working capital adjustments and accounting adjustments should be applied to the figures before they are pasted in.
An estimate, not advice. This is an estimate built from what you typed, not advice on your file. Nothing here reads your documents, checks your treaty article or looks at the year you are actually in. Where the number matters, we agree a fixed fee in writing before any work starts.
Where these figures come from
- current guidelines OECD Transfer Pricing Guidelines — the arm's length range
- current guidance Canada — international and large business, transfer pricing, CRA
- current guidance India — transfer pricing, Income Tax Department
Any figure prefilled in the panel above is stated with the year it belongs to and can be changed. Rates and thresholds move; a calculator that asks you for the current one stays right, and one that hides a guess does not.
Files that look like this one
Case study 1
Comparable range built from scratch for a subsidiary's first service charge
A subsidiary began charging its foreign parent for management services and had no arm's length range to test the proposed fee against. We built a comparable set for the service category, established the resulting range, and confirmed the proposed fee sat within it before the arrangement began.
Case study 2
Existing range challenged after market conditions shifted
A client's transfer-pricing range, built several years earlier, was queried during a review because the underlying market conditions had changed materially since it was constructed. We rebuilt the range using current comparable data, found the original fee still fell within the updated range, and used the refreshed analysis to support the client's position.
Case study 3
Range constructed to test a proposed royalty rate before it was finalised
A group wanted to confirm a proposed intercompany royalty rate would be defensible before formalising the licensing agreement. We built the arm's length range from comparable licensing arrangements, tested the proposed rate against it, and the group adjusted the rate slightly to sit more comfortably within the range before signing.
Case study 4
Leaving Canada — the Bill You Get for Assets You Still Own
Emigrating triggers a deemed disposition of most holdings, which produces tax on gains never realised in cash. The file values the property, identifies what is excluded, and looks at whether security can be posted rather than the tax paid outright.
Read how this one runs
Case study 5
A Secondment Whose Paperwork Decided the Tax
Who employs, who directs and who bears the cost are the facts a treaty article turns on, and an assignment letter is where they are recorded. Drafting it with the tax position in view prevents an argument later.
Read how this one runs
Case study 6
A Company That Needed a Resident on Its Board
Several jurisdictions require a locally resident director before a company can be registered or keep its filings current. The requirement is structural and is settled at incorporation rather than discovered at the first annual return.
Read how this one runs
Case study 7
A Pricing Study That Started With Who Does What
Functions, assets and risks decide which entity should earn the return, and the method follows from that rather than the other way round. Getting the sequence backwards is how a study fails on its first question.
Read how this one runs
Case study 8
Trips That Added Up to a Filing Obligation
Short visits are tracked against a treaty threshold that is measured over a moving window rather than a calendar year. Where the threshold is passed, the obligation reaches back over the whole period.
Read how this one runsAll case studies — every published engagement in one place.
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Foreign property income and sales are taxed in both countries by default; Section 216, FIRPTA and treaty credits are the standing toolkit.
Property is taxed where it sits, which is the one rule no treaty overrides. What the treaty does decide is the credit, the rate on the rent and what happens on the sale — and the clearance certificate on a disposition is applied for before closing, not after the buyer has already held the money back.
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