How to prepare high-quality benchmark studies

While the Danish transfer pricing regulations require an economic analysis that justifies the use of arm’s length terms and conditions, the rules do not per se require for benchmark studies to be prepared as a part of the transfer pricing documentation.

While the Danish transfer pricing regulations require an economic analysis that justifies the use of arm’s length terms and conditions, the rules do not per se require for benchmark studies (database analysis) to be prepared as a part of the transfer pricing documentation. When a benchmark study is the best approach, our experience tells us that it is a good idea to invest in high quality benchmark studies.

Benchmark studies are useful as a part of the group’s up front price setting of a service or goods transactions prior to the transaction taking place. Benchmark studies could also be prepared as a part of the annual compliance in support of the transfer pricing documentation’s economic analysis, or they could be prepared upon request of the tax authorities.

Regardless of which approach is applied, the single most important point is consistency.

Applying consistency in the search strategy when preparing a new benchmark study, applying consistency in terms of which types of comparables to reject, applying consistency in terms of which types of comparables to accept, etc. etc.

If you do change something from one year to another; clarify what was changed and the reasons for why.

Consistency will help avoid the pitfall of cherry picking.