Transfer Pricing: The CUP -- Case Studies: Australia, US, UK, Norway and Canada

34 Pages Posted: 29 Feb 2012 Last revised: 18 Jul 2012

See all articles by Richard Thompson Ainsworth

Richard Thompson Ainsworth

NYU - Graduate Tax Program; Boston University - School of Law

Andrew Shact

Boston University - School of Law

Date Written: February 28, 2012


All transfer pricing regimes give priority to the comparable uncontrolled price (CUP) method. Despite declarations that transfer pricing is a search for the “best method” or “most appropriate method,” all systems concede that the search is over when an exact comparable is found because a CUP is preferred over all methods. The best CUP is an exact CUP because it provides an arm’s length price that is not calculated. The price emerges directly from the comparison.

CUPs have traditionally been the most commonly applied method for both taxpayers and the government. They are the judicial gold standard. They hold sway even when they are constructed. Whenever constructed CUPs are involved trial argumentation invariably centers on the adjustments. While exact CUPs require no adjustments, the constructed CUP’s persuasive value is based on the quality of the adjustments made. Constructed CUPs produce calculated results, and so the concern is with the precision of the calculation.

This paper aligns five cases, each from a different country, to paint a multi-jurisdictional picture of the continuing importance of CUPs in transfer pricing. Australia – SNF (Australia) Pty. Ltd. v. Commissioner of Taxation. The court is very receptive to the taxpayer’s effort to construct a CUP at trial in support of a filing position that was explained as not much more than an educated guess.

US – Compaq Computer Corporation v. Commissioner. The taxpayer filed under a traditional cost-plus method, but at trial to a constructed CUP.

UK – DSG Retail Ltd. v. Commissioners for Her Majesty’s Revenue and Customs. This case demonstrates what happens when a court is convinced that adjustments are needed to inexact comparables, but when well-reasoned adjustments are not offered. Norway – ConocoPhillips Skandinavia AS and Norske ConocoPhillips AS v. Oljeskattekontoret. The CUP proposed is illusory. This case, like in DSG, results in a profit split.

Canada – Alberta Printed Circuits Ltd. v. Her Majesty the Queen. The Canadian Revenue Authority (CRA) in this case cannot overcome the authority of an exact CUP, and missed the business restructuring adjustment.

The traditional preference for CUPs in resolving transfer pricing disputes is alive and well in the courts. Courts give just as much authority to constructed CUPs (Compaq, and SNF) as are given exact CUPs (Alberta). The only requirement is that considerable time and effort is needed to prove comparability (DSG). CUPs do not answer all transfer pricing questions. There are clearly cases where exact CUPs are impossible (ConocoPhillips).

Keywords: Comparable Uncontrolled Price, CUP, Transactional Net Margin Method, TNMM, SNF (Australia), Compaq Computer, DSG Retail, ConocoPhillips, Alberta Printed Circuits, Business restructuring, Transfer pricing, OECD, Section 482

JEL Classification: K00, K11, K19, K22, K33, K34, K39

Suggested Citation

Ainsworth, Richard Thompson and Shact, Andrew, Transfer Pricing: The CUP -- Case Studies: Australia, US, UK, Norway and Canada (February 28, 2012). 66 Tax Notes International 465 (April 30, 2012); Boston Univ. School of Law, Law and Economics Research Paper No. 12-12. Available at SSRN: or

Richard Thompson Ainsworth (Contact Author)

NYU - Graduate Tax Program ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Andrew Shact

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

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