Contents - AL-Tax

6.5 Comparison 996.5 ComparisonAs discussed in Chapter 3, there is no market mechanism at work that would equalizegross margins across standalone distributors operating in the same geographicmarket, but sourcing “similar” products from different suppliers. Correspondingly,there is no real justification for comparing an affiliated distributor’s resale marginwith the gross margins reported by its unaffiliated counterparts in the samegeographic market, sourcing similar, albeit not identical, products from varioussuppliers.However, for purposes of our analysis under the current transfer pricing regime,we assume in this instance only that: An individual supplier would charge two unaffiliated distributors operating inthe same geographic market, with the same obligations regarding advertisingand promotion, the maintenance of adequate local stocks, etc., the same price forthe same products; and, The two distributors would resell these products at approximately the same price.While the circumstances that legitimately permit gross margin comparisonsrarely arise, in this case, where the multinational group is transitioning from unaffiliatedto captive distributors, this more valid comparison of gross margins is feasible.Hence, the current transfer pricing regime produces reasonable results in thisinstance. The virtue of the simplified alternative approach is that it is vastly lesstime- and resource-intensive.