Treas. Reg. 1.482-3: The Resale Price Method

Treas. Reg. Section 1.482-3 is the resale price method (RPM) section of the section 482 regulations. The method prices the controlled purchase by working back from the controlled reseller’s resale: the arm’s length price for the goods the reseller bought from its related supplier is the reseller’s resale price to unrelated parties, reduced by the operating expenses and by a gross margin equal to what an independent reseller of a comparable product would have earned on the same resale.

Section purpose

In plain English, Section 1.482-3 is the method for the reseller side of a distribution chain: the party being tested is the reseller (the controlled buyer that resells the goods), and the comparison is the reseller’s margin against the margin of comparable independent resellers. The method is the US home of the resale price discipline the OECD guidelines carry as one of the five methods — the second preference in the US order, after the CUP, and the natural method for the limited-risk distribution fact pattern.

The operative standard

• The tested party is the reseller. The comparison runs on the party that resells the related-purchased goods to unrelated parties — the distributor or the limited-risk reseller, not the supplier. The reseller’s economics (the operating expenses, the margin) are what the pool measures.
• The arm’s length price works back from the resale. The controlled purchase price equals the resale price to unrelated parties, less the operating expenses, less the comparable gross margin — the margin an independent reseller of the comparable product would have earned under comparable circumstances.
• The comparability runs on the product and the function. The method is most reliable where the reseller does not materially change the product and does not contribute intangibles that substantially affect its value — the limited-risk profile. Where the reseller adds significant value (the branding, the formulation, the integration), the method’s margin test no longer isolates the routine contribution, and the order of preference points elsewhere.

Key elements

Element	The content
The tested party	The controlled reseller — the party that resells the related-purchased goods to unrelated parties
The computation	Arm’s length purchase price = resale price to unrelated parties − operating expenses − the comparable gross margin (the independent reseller’s margin on the comparable product)
The comparables	Independent resellers of the comparable product, in comparable markets, with comparable functions, risks and contractual terms
The adjustments	The functional and contractual differences that materially affect the margin — product differences, market conditions, operating expenses — adjusted or the comparables discarded
The limits	The reseller must not materially change the product and must not contribute intangibles that substantially affect its value — the limited-risk boundary of the method
The order of preference	Second in the US order, after the CUP — the Section 1.482-1 ranking that makes the RPM the default where no uncontrolled price exists

How it maps to the OECD method set

• The same method, the same place in the logic. The OECD’s resale price method (the second of the five methods, the reseller-side test) is the RPM in the OECD dialect — the resale price method glossary and the methods overview carry the comparison.
• The TNMM dialect is the practical overlap. Where the reseller’s margin is benchmarked on a company pool with a gross-margin or operating-margin indicator, the Indian presentation is the TNMM on the gross margin — the same economics, the pool statistics instead of the transaction comparables. The methods overview keeps the two presentations distinct in one table.
• The limited-risk profile is the shared fact pattern. The RPM’s boundary (no material change, no value-adding intangibles) is the limited-risk distributor profile — the fact pattern the method was written around in both regimes.

Practice notes for the Indian group with a US affiliate

• The distributor side of the India–US chain. Where the Indian affiliate sells to the US affiliate and the US entity resells to unrelated US customers, the US RPM tests the US reseller’s margin — and the Indian Local File’s TNMM on the same distribution economics is the same price from the other side. The US transfer pricing guide carries the cross-border map; the CPM vs TNMM mapping carries the dialect difference.
• The margin is the number both examinations read. The reseller’s operating margin on resale is the PLI the US examination computes under Section 1.482-3 and the Indian examination computes under the TNMM — the file that carries the margin, the pool and the range in both presentations answers both with one set of numbers.
• The boundary question is documented, not argued. The reseller’s functions (the storage, the credit, the warranty, the local marketing) are what keep the method reliable — the FAR record in the documentation is the evidence the method’s limits are met. The methods overview carries the decision point.

Related docs

• US transfer pricing — the Section 482 overview
• Treas. Reg. 1.482-1 — the order of preference
• Resale price method — the glossary entry
• TNMM guide — the Indian dialect