COVERED
TRANSACTIONS AND TRANSFER PRICING METHOD (TPM) 
1.Covered Transactions. 

[Define the Covered Transactions.]

2.TPM. 

{Note: If appropriate, adapt
language from the following examples.} 

[The Tested Party is .] 


• CUP Method 
The TPM is the comparable uncontrolled
price (CUP) method. The Arm’s Length Range of the price charged for
is between and per unit.



• CUT Method 
The TPM is the CUT Method. The Arm’s
Length Range of the royalty charged for the license of is between % and %
of [Taxpayer’s, Foreign Participants’, or other specified party’s]
Net Sales Revenue. [Insert definition of net sales revenue or other royalty
base.]



• Resale Price Method (RPM) 
The TPM is the resale price method (RPM).
The Tested Party’s Gross Margin for any APA Year is defined as follows:
the Tested Party’s gross profit divided by its sales revenue (as those
terms are defined in Treasury Regulations sections 1.4825(d)(1) and (2))
for that APA Year. The Arm’s Length Range is between % and %, and
the Median of the Arm’s Length Range is %.



• Cost Plus Method 
The TPM is the cost plus method. The
Tested Party’s Cost Plus Markup is defined as follows for any APA Year:
the Tested Party’s ratio of gross profit to production costs (as those
terms are defined in Treasury Regulations sections 1.4823(d)(1) and (2))
for that APA Year. The Arm’s Length Range is between % and %, and the
Median of the Arm’s Length Range is %.



• CPM with Berry Ratio PLI 
The TPM is the comparable profits method
(CPM). The profit level indicator is a Berry Ratio. The Tested Party’s
Berry Ratio is defined as follows for any APA Year: the Tested Party’s
gross profit divided by its operating expenses (as those terms are defined
in Treasury Regulations sections 1.4825(d)(2) and (3)) for that APA Year.
The Arm’s Length Range is between and , and the Median of the Arm’s
Length Range is .



• CPM using an Operating Margin PLI 
The TPM is the comparable profits method
(CPM). The profit level indicator is an operating margin. The Tested Party’s
Operating Margin is defined as follows for any APA Year: the Tested Party’s
operating profit divided by its sales revenue (as those terms are defined
in Treasury Regulations section 1.4825(d)(1) and (4)) for that APA Year.
The Arm’s Length Range is between % and %, and the Median of the Arm’s
Length Range is %.



• CPM using a Threeyear Rolling Average
Operating Margin PLI 
The TPM is the comparable profits method
(CPM). The profit level indicator is an operating margin. The Tested Party’s
ThreeYear Rolling Average operating margin is defined as follows for any
APA Year: the sum of the Tested Party’s operating profit (within the
meaning of Treasury Regulations section 1.4825(d)(4) for that APA Year and
the two preceding years, divided by the sum of its sales revenue (within the
meaning of Treasury Regulations section 1.4825(d)(1)) for that APA Year and
the two preceding years. The Arm’s Length Range is between % and %,
and the Median of the Arm’s Length Range is %.



• Residual Profit Split Method 
The TPM is the residual profit split method.
[Insert description of routine profit level determinations and residual
profitsplit mechanism].


[Insert additional provisions
as needed.]

3.Application of TPM. 
For any APA Year, if the results of Taxpayer’s
actual transactions produce a [price per unit, royalty rate for the Covered
Transactions] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating
Margin, ThreeYear Rolling Average Operating Margin for the Tested Party]
within the Arm’s Length Range, then the amounts reported on Taxpayer’s
U.S. Return must clearly reflect such results.

For any APA year, if the results of Taxpayer’s
actual transactions produce a [price per unit, royalty rate] [or] [Gross Margin,
Cost Plus Markup, Berry Ratio, Operating Margin, ThreeYear Rolling Average
Operating Margin for the Tested Party] outside the Arm’s Length Range,
then amounts reported on Taxpayer’s U.S. Return must clearly reflect
an adjustment that brings the [price per unit, royalty rate] [or] [Tested
Party’s Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin,
ThreeYear Rolling Average Operating Margin] to the Median.

For purposes of this Appendix A, the “results
of Taxpayer’s actual transactions” means the results reflected
in Taxpayer’s and Tested Party’s books and records as computed
under U.S. GAAP [insert another relevant accounting standard if
applicable], with the following adjustments:

(a) [The fair value of stockbased compensation
as disclosed in the Tested Party’s audited financial statements shall
be treated as an operating expense]; and

(b) To the extent that the results in
any prior APA Year are relevant (for example, to compute a multiyear average),
such results shall be adjusted to reflect the amount of any adjustment made
for that prior APA Year under this Appendix A.

4.APA Revenue Procedure Treatment. 
If Taxpayer makes a primary adjustment
under the terms of this Appendix A, Taxpayer may elect APA Revenue Procedure
Treatment in accordance with section 11.02(3) of Revenue Procedure 20069.

[Insert additional provisions
as needed.]
