The PSM is highly complex in nature and time-consuming to apply than other transfer pricing methods as it requires significant analysis and
judgement.
The PSM is fluid, and the application of the method will depend on the controlled transaction being analysed. Unlike other methods, the PSM
relies on the application of assigning value to contributions by each party to a transaction. These contributions are evaluated based on the
functions performed, assets used, and risks assumed by each enterprise.
Therefore, a critical analysis of the PSM generally includes an analysis of the supply chain and identifying functions that are being
performed, assets that are being utilised and risks that are borne by each party.
Once this analysis has been performed it is important to assign value to these contributions in order to allocate profits in an arm’s length
manner.
Typically, a transfer pricing analysis heavily relies on external and internal data for comparison, however in the application of the PSM
only the analysis and judgement are considered.
Given the nature of this method, it invites the possibility of scrutiny from tax offices.