A Practical Guide to Transfer Pricing Technology, Comparable Data and Reliable Benchmarking
Transfer pricing analysis increasingly combines technical judgement, reliable financial data, economic analysis and specialised technology.
Commercial databases and analytical platforms can assist in identifying comparable companies or transactions, analysing financial information, benchmarking margins, interest rates or royalty arrangements, and managing transfer pricing documentation.
However, the database itself does not determine whether a transaction is at arm’s length. A reliable transfer pricing analysis requires an appropriate understanding of the transaction, functional analysis, selection of the transfer pricing method, comparability assessment, qualitative review and professional judgement.
Databases reviewed
OECD paragraphs cited
Page sections
01 | The Role of Technology in Transfer Pricing
Modern transfer pricing can involve significant volumes of financial, operational and market information.
Depending on the nature of the transaction, businesses and advisers may use technology to support:
- comparable-company searches;
- financial benchmarking;
- royalty and licensing analysis;
- intercompany loan and interest-rate analysis;
- creditworthiness assessments;
- financial-ratio calculations;
- Local File and Master File preparation;
- transfer pricing policy monitoring;
- documentation management;
- Country-by-Country Reporting workflows; and
- transfer pricing risk assessment.
Technology can make these processes more efficient and consistent. It does not, however, replace the need to properly delineate the controlled transaction and understand the functions performed, assets used and risks assumed by the parties.
02 | Main Categories of Transfer Pricing Tools
Transfer pricing tools generally fall into several categories.
Used primarily to identify potentially comparable independent companies and analyse their financial results.
Used to identify third-party agreements or transactions relating to royalties, licensing, services, financing or other arrangements.
Used to obtain information relevant to interest rates, debt transactions, credit markets, securities and other financial transactions.
Used to coordinate documentation, policies, data collection, calculations, reporting and compliance across entities and jurisdictions.
May assist with comparable screening, financial calculations, credit analysis, data processing and transfer pricing documentation workflows.
03 | Commercial Databases Used in Transfer Pricing Analysis
A single database may not be suitable for every transfer pricing analysis.
The appropriate data source depends on factors including:
- the nature of the controlled transaction;
- the selected transfer pricing method;
- availability of internal comparables;
- geographic market;
- industry;
- availability and quality of public information;
- the financial indicator being tested; and
- the level of comparability required.
Examples of commercial platforms that may be encountered in transfer pricing and related economic analysis are set out below.
Orbis provides company, ownership and financial information covering public and private companies across numerous jurisdictions. Moody’s describes Orbis as a comparable-data resource designed to facilitate company analysis and comparison. (Moody’s)
TP Catalyst is Moody’s specialised transfer pricing solution drawing upon Orbis data and designed to assist with benchmarking, comparability analysis and arm’s-length analysis. (Moody’s)
Moody’s also provides regional Orbis products, including Orbis for Europe, formerly Amadeus. (Moody’s)
Potential transfer pricing applications may include:
- comparable-company searches;
- TNMM benchmarking;
- company financial analysis;
- ownership and independence screening;
- industry analysis; and
- economic analysis.
S&P Capital IQ Pro is a financial and market-intelligence platform providing extensive public and private-company information, financial data, securities information, transaction data and analytical functionality. S&P specifically identifies comparable-company and valuation analysis among the platform’s applications. (S&P Global)
Depending on the transaction and available information, such data may assist with:
- company analysis;
- comparable-company research;
- financial benchmarking;
- debt and securities analysis;
- market research; and
- valuation-related economic analysis.
LSEG Loan Connector provides information and analysis relating to global loan markets and includes access to DealScan, which contains historical information on loan transactions and their terms. (LSEG)
Loan-market information can be relevant when analysing certain:
- intercompany loans;
- financing arrangements;
- lending terms;
- interest-rate considerations; and
- other financial transactions.
The relevance of particular loan-market observations nevertheless depends upon appropriate consideration of factors such as borrower creditworthiness, currency, maturity, security, seniority and transaction terms.
RoyaltyRange provides transfer pricing-focused datasets covering company financials, royalty arrangements, service fees and loan rates, together with related analytical tools. (RoyaltyRange)
Depending upon the transaction, its datasets may be relevant to:
- royalty benchmarking;
- licensing arrangements;
- service-fee benchmarking;
- loan-rate analysis;
- company benchmarking; and
- DEMPE-related analysis.
RoyaltyStat provides a database of licence and service agreements and related royalty-rate information intended for areas including transfer pricing, valuation and intellectual-property analysis. (RoyaltyStat)
Such transactional information can potentially assist in analysing:
- trademark licences;
- technology licences;
- patent arrangements;
- other intangible-property transactions; and
- certain service arrangements.
The existence of a royalty rate in a database does not, by itself, establish that the transaction is comparable to the controlled transaction under review.
ktMINE provides licensing, agreement and royalty-rate information that can be used to research market-based evidence relating to intellectual property and intercompany arrangements. (ktMINE)
Potential applications include:
- royalty-rate analysis;
- licence-agreement research;
- intellectual-property benchmarking; and
- analysis of contractual terms.
Depending on the nature of the analysis, transfer pricing professionals may also consider other appropriately licensed:
- market-data platforms;
- interest-rate databases;
- bond and debt-market information;
- commodity-pricing information;
- credit-rating information;
- securities-market information; and
- reliable publicly available sources.
The appropriate source should be determined by the transaction being analysed rather than by the popularity of a particular database.
04 | Matching the Data Source to the Transaction
Different transactions generally require different types of information.
| Transaction / Analysis | Information Commonly Required |
|---|---|
| Distribution / Trading | Comparable company financials, industry information |
| Manufacturing | Comparable company financials, functional and industry data |
| Management / Support Services | Comparable service providers, cost base and service characteristics |
| Royalty / IP | Third-party licence agreements, royalty rates and contractual terms |
| Intercompany Loan | Credit characteristics, loan terms, interest-rate and market information |
| Guarantee | Credit impact, guarantee characteristics and financial-market information |
| Key Management Remuneration | Relevant remuneration and market information |
| Commodity Transactions | Reliable quoted prices and transaction-specific market information |
| TNMM Benchmarking | Comparable-company financial information and qualitative company data |
The selection of a database should follow the transfer pricing analysis — not determine it.
05 | What Does the OECD Say About Commercial Databases?
The OECD Transfer Pricing Guidelines expressly recognise commercial databases as a common source of information for identifying external comparables.
The OECD notes that commercial databases can provide a practical and sometimes cost-effective means of identifying external comparable information and, depending on the circumstances, may provide a reliable information source. (OECD)
At the same time, the OECD identifies important limitations.
Commercial databases may:
- have different levels of geographic coverage;
- rely on information originally prepared for purposes other than transfer pricing;
- contain different levels of detail between companies and jurisdictions;
- have insufficient transactional information;
- contain information affected by local disclosure requirements; and
- require supplementation with other publicly available information.
The OECD therefore emphasises that databases should be used objectively and that genuine efforts should be made to identify reliable comparable information. It also cautions against prioritising the quantity of comparables over their quality. (OECD)
06 | Internal Comparables Before External Database Searches
Before undertaking an extensive external database search, businesses should consider whether reliable internal comparables exist.
An internal comparable can arise where one of the parties to a controlled transaction undertakes a sufficiently comparable transaction with an independent party.
The OECD notes that where reliable internal comparable information is available, it may be unnecessary to conduct a search for external comparables. (OECD)
However, the existence of an uncontrolled transaction does not automatically make it comparable. Relevant differences in:
- products or services;
- contractual terms;
- volumes;
- markets;
- functions;
- risks;
- credit terms; and
- economic circumstances
still need to be considered.
07 | Do Tax Authorities Automatically Accept Commercial Databases?
Database should not be treated as automatically accepted by a tax authority.
Commercial databases are encountered widely in transfer pricing practice, and some database providers state that their platforms are also used by tax administrations.
However, use by a tax administration or market recognition of a database does not mean that:
- every search performed using that database will be accepted;
- every company identified will be considered comparable;
- every jurisdiction accepts the same methodology;
- a particular arm’s-length range is automatically reliable; or
- use of a recognised database guarantees compliance.
A tax authority may review or challenge the underlying search methodology, comparability criteria, manual screening, financial analysis, adjustments and conclusions.
08 | What Makes a Benchmarking Study More Defensible?
A robust benchmarking analysis generally requires considerably more than downloading a list of companies from a database.
A structured process may include:
- Accurate Delineation of the Transaction
Understand the actual controlled transaction and the commercial relationship between the parties.
- Functional Analysis
Identify relevant functions performed, assets used and risks assumed.
- Selection of the Transfer Pricing Method
Determine the method most appropriate to the facts and available information.
- Identification of the Tested Party
Where relevant to the selected method, determine which party should be tested and why.
- Search Strategy
Establish objective criteria relating to:
- geography;
- industry;
- business activities;
- independence;
- financial information;
- ownership;
- availability of data; and
- other economically relevant characteristics.
- Quantitative Screening
Apply relevant database filters consistently.
- Qualitative Review
Review individual companies or transactions to determine whether they are sufficiently comparable.
- Rejection Analysis
Document the reason for excluding potential comparables.
- Financial Analysis
Determine the appropriate financial indicator, period and calculations.
- Comparability Adjustments
Consider whether reasonably reliable adjustments are appropriate where economically relevant differences exist.
- Arm’s-Length Analysis
Determine and interpret the relevant results in the context of the controlled transaction.
- Documentation
Maintain sufficient information to explain how the analysis was performed and how the conclusion was reached.
09 | Why Manual Review Still Matters
A database may identify hundreds or thousands of potential companies based on quantitative filters.
That does not mean those companies are economically comparable.
For example, two companies may share the same industry classification while performing materially different functions, selling different products, owning valuable intangible assets or assuming significantly different risks.
For this reason, transfer pricing benchmarking should ordinarily include a qualitative review of potential comparables rather than relying solely on automated results.
The OECD specifically cautions that comparability analysis performed using a commercial database alone can raise reliability concerns where the available information is insufficient to properly assess comparability. (OECD)
10 | Limitations of Commercial Databases
Even sophisticated databases have limitations.
Availability of Private Company Information
Detailed financial information on private businesses is not equally available in every jurisdiction.
Geographic Differences
Certain countries provide significantly more public corporate information than others.
Time Lag
Financial statements may become available only after a significant period following the relevant financial year.
Limited Segmentation
A company may conduct several different activities while reporting only consolidated financial information.
Industry Classification
Industry codes can assist screening but may not accurately describe the economically relevant activities of every company.
Transaction-Level Information
Company databases frequently contain considerably more company-level financial information than transaction-specific information.
Accounting Differences
Differences in accounting policies and financial presentation can affect comparability.
Limited Functional Information
Financial data alone may reveal little about functions, assets, risks or commercial strategy.
These limitations reinforce why database output should be treated as an input into the transfer pricing analysis, rather than as the conclusion itself. The OECD discusses several of these limitations when addressing commercial databases. (OECD)
11 | Transfer Pricing Software, Automation & AI
Transfer pricing technology continues to develop.
Modern solutions may provide functionality involving:
- automated company screening;
- data extraction;
- financial calculations;
- workflow management;
- documentation generation;
- anomaly identification;
- credit analysis;
- dashboard reporting; and
- AI-assisted research or analysis.
These capabilities can improve efficiency, particularly where multinational groups manage large volumes of transactions and documentation.
However, automated output still needs to be evaluated against the actual commercial facts.
AI can assist the analysis. It should not replace the analysis.
12 | Data Quality Before Technology
Even a sophisticated database cannot correct weaknesses in the underlying transaction or financial information.
Transfer pricing analysis can be undermined by:
- inaccurate financial data;
- poor account segmentation;
- incorrect transaction classification;
- inconsistent cost allocations;
- inappropriate tested-party selection;
- weak functional analysis;
- differences between contracts and actual conduct; or
- unreliable assumptions.
Accordingly, the quality of the underlying information is at least as important as the technology used to analyse it.
13 | Practical Best Practices for Database Benchmarking
When using commercial databases for transfer pricing purposes, businesses should consider maintaining a clear audit trail covering:
- database and version used;
- search date;
- geographic scope;
- industry classification;
- independence criteria;
- financial filters;
- keywords or business descriptions;
- quantitative screening;
- manual review;
- accepted companies;
- rejected companies and rejection reasons;
- financial years analysed;
- profit level indicator;
- calculations;
- adjustments, where applicable; and
- final arm’s-length analysis.
A well-documented process makes it easier to understand, update and defend the benchmarking methodology.
14 | Common Benchmarking Mistakes
Common weaknesses include:
- treating database results as automatically comparable;
- relying only on industry codes;
- selecting comparables based primarily on the desired result;
- inconsistent application of screening criteria;
- inadequate qualitative review;
- failing to document rejection reasons;
- using outdated financial information without considering relevance;
- applying an inappropriate profit level indicator;
- combining businesses with substantially different functional profiles;
- failing to reconcile tested-party financials to underlying accounts;
- ignoring available internal comparables; and
- assuming that use of a recognised database guarantees tax-authority acceptance.
A benchmarking exercise should be designed to identify reliable comparables, rather than simply generate a large comparable set.
15 | Choosing the Appropriate Transfer Pricing Tool
There is no universally “best” transfer pricing database.
A company-comparables database may be appropriate for a TNMM study but provide limited information for a royalty CUP analysis.
Similarly, a royalty database may provide valuable licensing information while being unsuitable for benchmarking routine distribution margins.
The selection should therefore consider:
Transaction → Method → Comparability Factors → Information Required → Appropriate Data Source
rather than:
Available Database → Search Results → Transfer Pricing Conclusion
Frequently Asked Questions
Depending on the transaction, commercially available sources may include company-information databases, licensing and royalty databases, loan-market databases, financial-market platforms and specialist transfer pricing tools.
Examples include Moody’s Orbis and TP Catalyst, S&P Capital IQ Pro, LSEG Loan Connector and DealScan, RoyaltyRange, RoyaltyStat and ktMINE. The appropriate database depends on the particular analysis.
Yes. The OECD Guidelines describe commercial databases as a common source of information for identifying external comparables. However, the OECD also stresses reliability, objective use and the importance of quality rather than simply the number of comparable observations. (OECD)
No. The database is only the information source. Reliability depends on the search methodology, comparability analysis, financial calculations, qualitative screening and facts of the transaction.
There is no automatic rule that every internal transaction is reliable. However, where a reliable internal comparable exists, the OECD notes that searching for external comparables may be unnecessary. (OECD)
No. A database can provide potentially relevant information, but the arm’s-length conclusion requires an analysis of the controlled transaction and the available comparable evidence.
Not by themselves. Licence agreements should be evaluated for factors such as the nature of the intangible, exclusivity, geography, rights transferred, contractual term, market characteristics and other economically relevant conditions.
They can provide potentially relevant market information, but the comparability analysis may also need to consider borrower creditworthiness, currency, maturity, security, subordination, repayment terms, purpose of financing and other relevant conditions.
The appropriate frequency depends on applicable local requirements and whether the underlying circumstances have changed. Businesses should also consider whether financial information, comparable companies, business activities or market conditions have materially changed since the previous analysis.
Software can support data collection, analysis and documentation, but transfer pricing remains fact-specific and requires technical and economic judgement.
How thetransferpricing.com Can Assist
From Data to Defensible Transfer Pricing Analysis
At thetransferpricing.com, we support businesses with the economic and technical analysis underlying their transfer pricing arrangements.
Our services include:
- Transfer Pricing Benchmarking Studies
- Comparable Company Searches
- Functional, Asset & Risk Analysis
- Economic & Financial Analysis
- Intercompany Loan & Interest Rate Benchmarking
- Royalty & Intangible Transactions Analysis
- Management & Intra-Group Service Analysis
- Connected Person Remuneration Benchmarking
- Transfer Pricing Policies
- Local File & Master File Preparation
- Related-Party Transaction Reviews
- Transfer Pricing Health Checks
- Audit & Dispute Support
Depending on the nature of the engagement and availability of relevant comparable information, our analysis may draw upon appropriately licensed commercial databases, reliable publicly available information and other relevant economic data sources, together with qualitative screening and professional judgement.
No particular database, methodology, comparable set or arm’s-length result can be guaranteed to be accepted by a tax authority. The appropriate approach depends on the applicable law, facts and circumstances of each engagement.
Need support with a benchmarking or transfer pricing matter?
Important Third-Party Notice
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The information on this page is provided for general informational and educational purposes only and does not constitute tax, legal, accounting or transfer pricing advice.
The appropriate transfer pricing methodology, comparable information, documentation and conclusions depend upon the specific facts and applicable requirements of each transaction and jurisdiction.
Professional advice should be obtained before relying upon any database, methodology or information source for a particular transaction.