Comparable uncontrolled price method
The comparable uncontrolled price (CUP) method sets an intercompany transfer price by reference to the price charged in a similar transaction between unrelated parties, adjusted for material differences.
FrameworkOECD Transfer Pricing Guidelines
See it move
A division sells a connector to an external customer for €25.00 per unit at that customer's usual 200-unit order size. An affiliate orders 1,200 units, which qualifies for the same 12% volume discount any customer ordering over 1,000 units receives. The comparable uncontrolled price method gives €25.00 minus €3.00, an arm's length transfer price of €22.00 per unit.
The formula
Variables
- Arm's length transfer price (€)
- Comparable uncontrolled price observed in an external transaction (€)
- Net adjustment for material differences between the internal and external transaction (€)
The CUP-based transfer price starts from a real external price and adjusts it for any material difference between the internal and external transaction.