The Resale Price Method in Transfer Pricing


As the UAE solidifies its position as a global trade hub, multinational enterprises (MNEs) operating within its borders must navigate the intricacies of transfer pricing. Here, we explore the Resale Price Method (RPM), a popular approach for establishing arm’s-length pricing in scenarios where goods are purchased from a related party and resold to independent customers.

Detailed Examination of the Resale Price Method


The Resale Price Method (RPM) is a widely used transfer pricing approach, especially effective for businesses that purchase goods from a related entity and resell them to independent parties. This method is particularly relevant in distribution businesses, where products are often acquired from multinational entities and then sold in different markets.

Key Stages of the Resale Price Method are:


  1. Understanding the Method:

Imagine a company in Dubai procures electronics from a related party in Germany and then sells them to independent retailers in France. The RPM would analyze the price at which these electronics are sold to the French retailers, and then subtract a typical gross margin for electronics distributors in France to arrive at an arm’s-length principle transfer price for the initial sale between the German and Dubai-based companies.

  1. Calculating the Resale Price Margin:
  • Determining the Margin: The RPM relies on identifying an appropriate gross margin. This is typically achieved by examining the gross margins earned by the MNE on similar resale transactions involving unrelated parties and comparable products.
  • Market Adjustments: When comparing gross margins, adjustments may be required to account for variations in:
    • Functions performed: Does the MNE perform additional tasks (e.g., marketing, after-sales service) compared to other distributors?
    • Risks assumed: Who bears the risk of product obsolescence or price fluctuations?
    • Contractual terms: Are there any special payment terms or warranties offered by the MNE that differ from typical industry practices?
    • Economic conditions: Are there economic factors, like varying import duties or distribution costs, that influence profitability across different markets?
  1. Applications and Limitations:
  • Industries: The RPM is particularly well-suited for industries like retail and distribution, where goods are purchased from related entities and subsequently sold to end consumers (e.g., electronics or automotive parts). It can also be, in some instances, adapted for service-based businesses.
  • Strengths: The RPM offers a straightforward approach, especially when reliable data on gross margins and resale transactions are available.
  • Challenges: Ensuring the comparability of gross margins across different markets and scenarios can be difficult. The method is less effective when the MNE adds significant value to the products (beyond simply reselling them), as this can significantly impact the market value.
  1. Documentation and Compliance:

Thorough documentation is essential for upholding the use of RPM during tax audits. This documentation should include:

  • A detailed explanation of the pricing methodology chosen (RPM).
  • Calculations of the gross margin adopted and the rationale behind it.
  • A comparability analysis outlining the chosen comparables and any adjustments made to account for market variations.
  • Clear justifications for selecting the RPM and the chosen comparables.

The UAE, like many countries, emphasizes aligning with international best practices. Maintaining comprehensive documentation is crucial for satisfying both local and global tax regulations.

A Real-World Example of The Resale Price Method in Transfer Pricing


A Dubai-based company imports jewelry from a related manufacturer in India. To determine the arm’s-length transfer price for the jewelry, the company could leverage the RPM.

  1. They would first analyze the resale price of the jewelry to independent retailers in the UAE.
  2. Then, they would subtract a standard gross margin earned by jewelry distributors in the UAE on similar quality jewelry to arrive at an arm’s-length transfer price for the initial purchase from the Indian related party.
Looking to optimize your transfer pricing strategy in Dubai?


The Resale Price Method is a practical tool for businesses engaged in buying and reselling products. It is particularly useful when clear, straightforward comparisons to uncontrolled transactions can be made. Businesses operating in the UAE, dealing with imports and resale in international markets, can leverage RPM to ensure compliance with transfer pricing rules and to optimize their tax liabilities by demonstrating that their intra-group transactions are conducted at arm’s-length principle, which our CFO services in Dubai can assist you with.

The Resale Price Method offers a practical approach, especially for import and resale businesses. By leveraging RPM, you can demonstrate arm’s-length transactions and potentially minimize tax liabilities. Get in touch with us to learn more about how our platform can connect you with qualified tax consultants in Dubai.

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