FAR analysis
A FAR you can defend.
Rate what the tested party and its associated enterprise each do, own and risk. The characterisation is scored in code, the method and PLI follow from it, and both carry into benchmarking once you confirm.
The evidence
Every item rated for each party.
The tested party and the associated enterprise are rated separately, Nil to High, on every function and risk.
Scored in code
The same ratings give the same answer.
Your ratings are scored by a fixed set of rules, not a language model. The result is always one of a fixed list of characterisations, and you confirm it before anything moves on.
- Override the characterisation, method or PLI. The result is marked as your override.
- Change a rating and the characterisation is scored again before it is shown.
18 characterisations
- Toll Manufacturer
- Contract Manufacturer
- Full-fledged Manufacturer
- Routine Manufacturer
- Sales Agent
- Commissionnaire
- Limited-risk Distributor
- Normal-risk Distributor
- Full-risk Distributor
- Full-fledged Distributor
- Buy-Sell Entrepreneur
- Low-Value Service Provider
- Routine Service Provider
- Specialised Technical Service Provider
- Captive Service Centre
- Entrepreneurial Service Provider
- Contract R&D
- Entrepreneurial R&D
Method and PLI
The PLI follows the direction of the transaction.
Method and PLI come from a matrix of transfer-pricing models. A tested party that earns on the transaction is measured on its costs, one that pays is measured on its revenue.
- Where a gross margin method needs data that is not available, TNMM is applied instead.
- You can change the method or PLI, and the PLI is worked out again.
| Transaction | Method | PLI |
|---|---|---|
| Purchase of goods for resaleTested party pays · gross margin data available | RPM | GP/Sales |
| Purchase of goods for resaleTested party pays · no gross margin data | TNMM | OP/OR |
| Services provided to the AETested party earns | TNMM | OP/OC |
Read, then reviewed
Answers drafted from the documents, decided by you.
AI reads the uploaded documents and proposes answers to the FAR questions for each transaction. Each proposal stays marked as suggested until a practitioner reviews it, and answers the model is unsure of are left blank rather than guessed.
- An asset the financial statements do not show is flagged, not added silently.
- Word and PowerPoint files need a PDF export first.
Into benchmarking
No study starts on an unconfirmed FAR.
Transactions with the same economic profile are grouped, and each group gets one characterisation. A group’s benchmarking study can only be opened once that characterisation is confirmed, and the method and PLI carry into it.
- Run a FAR study on its own, or per transaction inside an engagement.
- A group can run more than one search when its transactions need different PLIs.
Year two
Last year’s analysis, carried as filed.
When an engagement rolls forward, the functions, assets and risks in last year’s TP report come across with the ratings they were filed with, and the paragraphs describing them are kept. Last year’s grouping is proposed as a starting point.
Characterization carried from prior-year report
- Distribution
- Tested party HAE N
- Strategic Management
- Tested party LAE H
- Inventory Risk
- Tested party LAE M
“The Company undertakes the distribution of automation equipment in the UAE, including warehousing, delivery and after-sales coordination with customers.”
Coverage
What it covers.
- Functions
- 45
- One catalogue for every FAR screen
- Risks
- 32
- Rated for the tested party and the AE
- Assets
- 4 tangible, 6 intangible
- Plus the fixed-asset schedule from the financials
- Characterisations
- 18
- A fixed list, never free text
- Method matrix
- 19 models
- Method and PLI by direction
- Report
- Profile, industry, functions and risks drafted by AI
Questions
Before you ask.
- Does AI decide the characterisation?
- No. AI reads the documents, suggests answers and drafts the report narrative. The characterisation is scored in code from your ratings, and a practitioner confirms or overrides it.
- Can benchmarking start before the FAR is confirmed?
- No. A group’s benchmarking study can only be opened once its characterisation is confirmed.
- Do I need an engagement to run a FAR?
- No. A FAR study can run on its own, or be linked to an engagement and built transaction by transaction.
- What if I disagree with the method?
- Choose a different method or PLI. Your choice replaces the recommendation and is marked as an override.
