You prepare a comparability analysis to establish or test prices in controlled transactions. Through this analysis, you clarify that the price you set is in accordance with the arm's length principle.

The comparability analysis is an analysis consisting of several parts. In our guidance, we present the comparability analysis in two main sections. Comprehensive guidance can be found in the OECD guidelines, which outline a 9-step process as best practice for conducting the comparability analysis. In Part 1 of the analysis, you identify and delineate the controlled transaction. This corresponds to the first three steps in the OECD guidelines. This analysis involves:

• identifying the controlled transaction and selecting the year for analysis (analysis period)
• conducting a general analysis
• delineating the controlled transaction

In Part 2 of the comparability analysis, you compare the controlled transaction with comparable transactions between independent parties to establish the arm's length price. This analysis includes:

• selecting the tested party for comparison
• establishing a basis for comparison
• select the most appropriate transfer pricing method
• determining the arm's length price

Each of the main sections contains several steps, with underlying processes that require extensive analytical work.

The comparability analysis is not a linear process. In Part 1, you will move back and forth between the various steps as the actual circumstances affecting the controlled transaction become clear. Part 2 of the analysis will depend on the controlled transaction as it has been delineated and the information you can find about comparable uncontrolled transactions. The delineated transaction will also affect your choice of method for determining the price. You can adjust the details and scope of the analysis based on how significant the transaction is for the business.

The comparability analysis is illustrated in the figure below.

In Report and Document Transfer Pricing you will find a general overview of what information from the comparability analysis you need to describe in your transfer pricing documentation. You will find guidance on several of the steps in the comparability analysis in How to Conduct the Comparability Analysis.

Risks of not conducting the comparability analysis

If you do not conduct the comparability analysis, or if the analysis is flawed, you risk:

• incorrect or improperly determined price (not an arm's length price)
• errors in reporting controlled transactions
• a follow-up from us, including audits and discretionary determination of income

You must allocate time and resources to prepare analyses that support the pricing of controlled transactions. You are the ones who know your business and the circumstances surrounding the transactions best. You can avoid misunderstandings and resource-intensive dialogue if you prepare a solid comparability analysis that provides precise and structured descriptions.

When to conduct or update the comparability analysis

You should conduct the comparability analysis before or at the same time as the transaction occurs. The Norwegian Tax Administration recommends that you conduct this analysis before each transaction. This provides better foundation for determining the arm's length price. When you present the comparability analysis in your reporting to us, you must specify the period (year) to which the comparability analysis applies. You must update the comparability analysis if the nature of the transaction changes. This may be the case when the execution of the transaction does not align with what was agreed upon.