Transactional Net Margin Method (TNMM)

Generally accepted in cases of transfer of semi-completed products, distribution of completed goods and transactions linking the condition of services.

In this method generally apply in the case of transfer of partially completed products, distribution of completed goods and where RPM cannot be sufficiently applied. In general RPM more suitably applied in this case, TNMM is also not right.

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In this method:

  1. Relatively the net profit margin of a entities take position from a non-arm's length deal with the net profit margins understand by arm's length associate parties from comparable transactions; and
  2. Observe the net profit margin relation to suitable base such as price, sales or properties.

This vary from the cost plus and resale price methods that balance gross profit margins. though, the TNMM need a stage of similarity to that necessary for the request of the cost plus and resale price methods. Where the applicable information exists at the gross margin stage, associate enterprises should apply the cost plus or resale price method.

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