In transactions where both parties contribute unique and significant value, and where one-sided methods (like TNMM) are insufficient due to lack of comparable data, the Profit Split Method (PSM) is the industry-standard solution.
At Benchmarket we provide expert DEMPE analysis (Development, Enhancement, Maintenance, Protection, and Exploitation) and functional-risk assessments to ensure your profit allocation aligns perfectly with OECD Guidelines.
his method enables an arm’s-length allocation of remuneration by dividing combined profits (or losses) based on the actual economic contribution of each party. By applying DEMPE factors and a functional-risk-based approach, we objectively assess how assets, functions, and risks drive value creation in your organization.
As part of our specialized advisory, we prepare a robust defense file including:
1. Transaction profile and justification for the method: identification of the project scope and required input data, detailed analysis of functions, assets and risks for each party, assessment of whether the conditions for applying the profit split method are met.
2. Identification of profit allocation keys: selection of metrics reflecting each party’s economic contribution, analysis of potential weighting methods (costs, assets, DEMPE factors, operational indicators), selection of the optimal model (residual profit split or contribution profit split).
3. Construction of the profit split model: determination of the combined profit subject to allocation, calculation of remuneration for routine functions (where applicable),allocation of the residual profit based on the selected keys.
4. Preparation of the final arm’s-length justification: presentation of results in both tabular and descriptive form, confirmation of compliance with the arm’s length principle.
5. Documentation and argumentation: preparation of a draft analysis in Word format, including appendices with financial data and calculations, preparation of conclusions for Local File or Master File documentation, exchange of comments and delivery of the final version (approx. 15 pages in Word + Excel and PDF attachments).
Our Profit Split and DEMPE analysis does more than just ensure compliance. It provides a clear, defensible framework for intra-group profit allocation, significantly minimizing tax risks and preparing your organization for the most rigorous tax audits.
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