What are core elements of the Residual Profit Split analysis?
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Michael Kalson, PhD
Residual Profit Split analysis is applying the Residual Profit Split Method (RPSM) to a transfer pricing transaction. RPSM is for pricing a controlled transaction involving both routine contributions as well as unique attributes that make it difficult to find a comparable uncontrolled price. It consists of firstly remunerating each party for its routine contributions in a manner in accordance with the arm’s length principle. Next, any residual profit is allocated among the parties using an allocation key based on the profits earned by comparable companies performing similar functions and incurring similar risks.
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