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In the world of transfer pricing, one of the most commonly used terms is “functionally not comparable.”
Recently, one of the trainee from one of my previous transfer pricing programs reached out to me with a question: why do we often reject companies during qualitative benchmarking on the grounds of being “functionally not comparable,” when the OECD comparability framework clearly requires an assessment of functions, assets, and risks (FAR)? It’s a valid observation — while functions are easier to analyze based on public data, assessing assets and especially risks is far more complex due to limited disclosures. However, difficulty in accessing data does not negate its relevance.
A software developer and an AI company might both perform similar coding functions — but the latter may own proprietary algorithms and bear cybersecurity risk. Are they truly comparable? Functionally, perhaps. So here’s a thought: instead of saying “functionally not comparable,” this can be evolved to “FAR-incomparable.” Even when we lack full details, this term forces us to acknowledge the importance of functions, assets and risks analysis. This shift not only aligns more closely with the OECD framework — it also reminds us that robust benchmarking is about more than just functions.
Note: “FAR-incomparable” is not an OECD term but serves as a shorthand to stress full FAR rigor.
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Contributor
Ajit Jain is a seasoned Transfer Pricing professional with over a decade of experience in Value Chain Analysis and Tax Technology. Holding a Diploma in Tax Technology from CIOT, UK, and recognized with the FIT Fellowship Award in 2015, Ajit has worked at PwC Mumbai, PwC Middle East, and KPMG London. As the Head of Transfer Pricing at AJMS Global, Dubai, he leads the team in building the Transfer Pricing practice in the Middle East Region. Ajit is a respected speaker and thought leader on Transfer Pricing and International Taxation.
