(1) The resale price method determines whether the amount charged in a controlled transaction gives rise to an arm's length result by reference to the resale gross margin realized in a comparable uncontrolled transaction.
(2) The following steps shall apply in determining the arm's length result under the resale price method, namely:-
(a) determine the price that a product purchased from an associate has been sold to a person who is not an associate (referred to as the "resale price");and
(b) from the resale price is subtracted a gross margin (referred to as the "resale gross margin") representing the amount that covers the person's selling andother operating expenses and, in light of the functions performed (taking into account assets used and risks assumed), make an appropriate profit;
(c) from that amount is subtracted any other costs associated with the purchase of the product, such as customs duty; and
(d) the amount remaining is the arm's length result.
(3) The resale price margin of a person in a controlled transaction may be determined by reference to:-
(a) the resale price margin that the person earns on products purchased and sold in a comparable uncontrolled transaction; or
(b) the resale price margin that an independent person earns in comparable uncontrolled transaction.
