Economic Adjustment: Capacity Utilization Adjustment

Journal
India; International
International Transfer Pricing Journal 2015 (Volume 22), No. 2
This article discusses how a difference in the level of capacity utilization impacts the profit margin and when taxpayers should consider making capacity utilization adjustment in their transfer pricing analysis. As there is no authoritative guidance available on this subject, the author looks into various practical approaches that could be used by taxpayers to calculate a capacity utilization adjustment. Finally, the article provides tips for documenting such adjustment in a transfer pricing study report.