The Importance of Size in Transfer Pricing Comparable Company Searches

Abstract

We document the existence of a size premium for independent manufacturing companies in Europe: larger companies tend to have higher Return on Total Costs. This impact has a large magnitude and is statistically significant. Following the OECD Guidelines, the impact of size should thus be taken into account by Transfer Pricing practitioners when performing comparable company searches, in industries where such size premia are observed. The current practice of relying on small comparable companies to benchmark large MNEs should be revised.

Keywords: International Tax, Transfer Pricing, OECD, Profitability, Manufacturing, Size premium

JEL Classification: H25, H32, H87