Resale price method (RPM)
Description of the method: the resale price method consists in reducing the price set in a transaction between a given party and an independent party, concerning goods or services previously acquired by that party from a party related to it, by a resale margin. The price so determined may be regarded as the arm's length price in the transaction between that party and the party related to it.
Application of the resale price method (RPM)
This method is used mainly in trade in goods and the price is determined by reducing the price agreed with an unrelated party by a resale margin. The resale margin covers direct and indirect expenses connected with the transaction, excluding general administrative costs (that is the costs of operating the entity as a whole and of managing it), and an appropriate rate of profit for the given type of transaction. Indirect costs should be allocated in accordance with accounting rules, so that the calculation is made in conformity with the law. Particular attention should be paid to any changes in the value of the item that occurred before its sale to an independent party. Such activities may include packaging, labelling, inward processing in any form and the like. Such a change is taken into account when adjusting the price.
Calculating the margin under the resale price method
The resale margin does not cover expenses corresponding to the price of the subject of the transaction or general administrative costs, that is the costs of operating the entity as a whole and of managing it.
The resale margin is determined by reference to the level of margin that the same party applies in comparable transactions concluded with independent parties (internal comparison), or to the margin applied in comparable transactions by independent parties (external comparison).
Factors affecting the level of the resale margin
In determining the level of the resale margin, account is taken in particular of:
- factors connected with the time elapsing between the original purchase and the resale, including those relating to market changes in costs, exchange rates and inflation,
- changes in the condition and degree of wear of the goods or rights that are the subject of the transaction, including those resulting from technical progress in the field concerned,
- the reseller's exclusive right to sell particular goods or rights, which may affect a decision to change the margin.
Comparability of transactions: required by Chapter 2, Examination of the comparability of transactions, in conjunction with Chapter 3, Transfer pricing methods, of the Regulation of the Minister of Finance of 21 December 2018 on transfer pricing for corporate income tax purposes.
Mathematical formula for the resale price method
Mathematical formula: TP = CR * (1 - m) where:
TP is the transfer price, CR is the price of the item in a transaction with an independent party (internal comparison) or between independent parties (external comparison), m is the level of margin applied in transactions with independent parties or in transactions between independent parties.