Comparable uncontrolled price method (CUP)
Statutory method
the comparable uncontrolled price method consists in comparing the price set in transactions between related parties with the price applied in comparable transactions by independent parties and, on that basis, determining the market value of the subject of the transaction concluded between related parties.
Forms of price comparison under the CUP method
Prices are compared in two forms:
- internal price comparison, carried out on the basis of the prices that the given party applies on the market in question or on a comparable market in transactions with independent parties,
- external price comparison, carried out on the basis of the prices that other independent parties apply in comparable transactions.
Internal and external price comparisons are regarded as comparable if none of the possible differences between the transactions compared, or between the parties concluding them, could materially affect the open market price of the subject of such a transaction, or if reasonably accurate adjustments can be made to eliminate the material effects of such differences.
Application of the CUP method
Estimating the potential effect of differences between transactions on the price is particularly difficult where the subjects of the transactions differ. The CUP method can therefore be used for undifferentiated products, such as exchange-traded commodities or raw materials, where any differences in brand and in individual product features should not materially affect the transaction price. It is also necessary that the parties taking part in the transactions compared performed similar functions in them and assumed comparable risks.
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: there is no mathematical formula describing the comparable uncontrolled price method.