Taxpayers are advised to apply four steps to implement a process for setting the market price.  The four steps link the arm’s length principle, questions of comparability and the transfer pricing methodologies into a process that takes into account of the facts and circumstances of the taxpayers and assists in the collection and analysis of information as well as the documentation of the results and process of each step.

Step 1  Characterise the international dealings between related parties.

1. The identification of the scope, type, value and timing of international dealings with related parties.  In this regard, the following details need to be made.
   
   1.1 Organisational structure and relationship between business entities within the same group, operation plans, minutes of the meetings of board of directors or executives;
   1.2 External factors affecting the business such as nature of industry and market conditions, structure and nature of the competition, distributors, customers, new competitors, and other economic factors affecting the business. 
   1.3 Intangible assets used and their ownership; and
   1.4 Details of the transactions with related parties, describing characteristics of property and service, value, and other contractual terms.
    
2. The identification of the economically important activities and description of operations of each business entity.
   
   2.1 Functions performed, indicating the economically significant functions or activities;
   2.2 Assets used, both tangible and intangible assets including human resources and nature and extent of its use; and
   2.3 Risks assumed by each of the parties.

Step 2  Select  the most appropriate method in calculating the market price

1. Identify the data that may establish the market price for the transaction between related parties.
2. Determine the most appropriate methodology in calculating the market price based on the facts and circumstances of the particular case.

Step 3  Apply the method selected in Step 2 and calculate the market price.

The objective of Step 3 is to apply the methodology selected in Step 2 to calculate the market price that is reasonable and credible. It is necessary to consider the data obtained from Step 1 to enable comparability to be properly assessed.  

Taxpayers should:

1. Adjust data to eliminate material differences, for example accounting policies of each country may be different.
2. Group data in the same format.
3. Extend the analysis over 3 - 5 years in order to observe irregularities which may affect the business.

The market price calculated under this step may be a single price or a range of results.

Step 4  Review the process from Steps 1 - 3 to ensure the use of the appropriate methodology.

After the market price was decided under Step 3, whether in the form of a single price or a range of results, the taxpayer shall review the process in Steps 1 - 3 to ensure that the selected methodology is appropriate. If the methodology is appropriate he shall apply the calculated market price to the present and future transactions with related parties.

Nevertheless, if material changes occur that affect the calculated market price, i.e. the information or selected methodology is outdated, an event occurs that directly effects the assumptions used, or better information or information sources for comparability analysis is found, taxpayers must once again apply Steps 1 - 4.