Scenario: an FDI company imports virgin plastic resin from its Saudi parent while also buying the same resin grade from two independent Vietnamese suppliers. When the tax authority questions the parent’s import price, the accountant simply places three price lists side by side: the parent price, independent supplier prices, market quotations. That is the CUP method — the most direct, most persuasive, but also most demanding of all transfer pricing methods.
What is CUP and when is it the first choice?
The Comparable Uncontrolled Price (CUP) method compares the price of the controlled transaction with the price of a comparable uncontrolled transaction. It is the most direct method because the comparison object is price itself — no margin intermediation. CUP is preferred where:
- Goods/services are homogeneous and standardised: raw materials, exchange-quoted commodities (coffee, rubber, steel), interest rates, royalties with market benchmarks;
- Comparable uncontrolled transactions exist: same product, same commercial terms, same timing — or differences that can be adjusted;
- The company has internal CUPs: as in the opening scenario — buying the same goods from both related and independent parties. This is the strongest comparable because product and market differences are eliminated.
Where do comparable data come from?
Priority order: (1) the company’s own internal dealings with independents; (2) public quotations (commodity exchanges, supplier price lists); (3) customs data on similar imports; (4) commercial databases — Circular 95/2026/TT-BTC (effective 01/7/2026) formally recognises commercial databases for benchmarking, resolving long-standing doubts about purchased data’s legal standing.
Comparability adjustments — where CUP usually dies
Two transactions are rarely identical. Material differences must be quantitatively adjusted before comparison: purchase volumes (quantity discounts), delivery terms (FOB vs CIF), payment terms (90-day credit vs cash), timing (monthly commodity swings), freight, insurance. Adjustments need transparent computation — auditors scrutinise each one, and an unsubstantiated adjustment is worse than none.
When NOT to use CUP
CUP fails for: unique intangibles (proprietary formulas, own brands — no comparable uncontrolled transaction exists); bespoke intra-group services; products with large quality/brand differences that cannot be reliably adjusted. Forcing CUP here produces false comparability — the authority rejects it and switches to a profit method, usually worse for the taxpayer.
FAQs
Can customs values serve as CUP data?
As reference, with caution: declared customs values are import-duty values, potentially influenced by the transfer pricing policy itself and not reflecting full commercial terms. Use as supporting data, not the sole source.
Does the authority accept foreign commercial database data?
Yes, if suitable and market differences are adjusted, per Circular 95/2026/TT-BTC. Domestic data is preferred; using foreign data requires explaining why no domestic equivalent exists.
What price deviation percentage is deemed unreasonable?
No hard statutory threshold. Reasonableness is judged by whether the price falls within the arm’s length range of adjusted comparables. Even small unexplained gaps can be adjusted.
Internal vs external CUP — which is stronger?
Internal CUP (the company’s own dealings with independents) is stronger because it eliminates product, market and strategy differences. Seek internal CUPs before buying external data.
This article has been quality-reviewed by the FLAW AI Legal Council
