The CUP Provisions: When Direct Price Evidence Wins

The CUP provisions sit inside the methods set of Chapter 2 of the OECD Guidelines (2.62-2.80). The comparable uncontrolled price is the most direct evidence of an arm’s length price: an uncontrolled price for identical or similar property or services, in comparable circumstances. Where it exists, the best-methods rule gives it first preference — and that is exactly why the practical content of the CUP provisions is the test of whether a transaction is close enough to an uncontrolled price to use it, and what adjustments are permitted to bridge the gap.

The provisions at a glance

Subject	What it covers
The CUP in principle	The arm’s length price is the uncontrolled price for identical property or services, in comparable circumstances, between independent enterprises
Identity and similarity	When a transaction is identical to an uncontrolled one, and when it is similar enough that a reliable adjustment can bridge the difference
Internal vs external CUP	Whether the uncontrolled reference is the group’s own uncontrolled transaction or a third-party price in the open market
Commodity pricing	The classic CUP case: commodities with published or exchange prices, where the uncontrolled price is directly observable
The comparability conditions	The product, function, market, terms and conditions that make an uncontrolled price comparable, drawn from the five factors at 3.7 in Chapter 3
The practical limits	For many transactions — unique goods, intangibles, highly differentiated services — no reliable uncontrolled price exists, so the other methods apply

Internal and external CUP

• Internal CUP uses the group’s own uncontrolled transaction as the reference: the same good sold by the same entity to unrelated customers, or the same service provided to unrelated customers on the same terms. It is the strongest form because the product, the function and much of the market are already controlled; the remaining question is whether the customer mix and the volumes are comparable.
• External CUP uses a third-party price in the open market. It is harder to establish — the terms, the volumes and the market position have to match — but it is the form that wins in commodity pricing, where exchange or published prices give a directly observable reference.

Commodities are the canonical case. Where the good is fungible and the market price is observable, the CUP is usually the most reliable route, and the best-methods rule at 2.62-2.80 points to it first.

The comparability conditions and their limit

In paraphrase, the provision draws a line between a truly comparable uncontrolled price and one that requires adjustment — and sets the limit beyond which the adjustments undermine the comparability. The conditions are the five comparability factors applied to a single price:

• The price must be at the time of the transaction, in the form in which the comparison is made — the unit, the currency, the delivery terms.
• Adjustments are permitted only where the difference is measurable and reliable. A price that requires more than a minor adjustment is not a reliable CUP; at that point the method has quietly become a different method, and the best-methods rule must be applied again.

This is the provision cited in every CUP defence and in every CUP rejection: the asserted CUP either survives the conditions or it does not, and the file must show which.

Where the CUP gives way

The provisions are explicit that the CUP is not always available. For unique goods, intangibles and highly differentiated services there is usually no reliable uncontrolled price, and the analysis moves to the other methods in the Chapter 2 set: resale price, cost based / comparable profits or profit split where both sides are non-routine.

What it means in practice

The CUP is the method Indian practitioners reach for first and use least: the Indian pool norm and the fact pattern of most benchmarking studies make an external CUP rare, while an internal CUP exists only where the group has genuinely comparable uncontrolled sales. When it exists, it outranks the one-sided methods; when it does not, the defensible position is the how to choose a method argument for the next-best route.

Where this takes you

• The CUP in practice: the CUP method guide.
• The hierarchy the CUP sits in: how to choose a method and the best-method rule.
• The conditions the price must meet: OECD comparability.
• The sibling method families: resale price and profit split.