Profit Split / DEMPE Analysis

In transactions where both parties contribute unique and significant value, and where it is not possible to apply one-sided methods based on comparable data, the appropriate solution is the Profit Split Method.
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This method enables an arm’s-length allocation of remuneration by dividing the combined profit (or loss) according to the actual contribution of each party’s functions, assets, and risks.In determining the allocation keys, we apply elements of DEMPE analysis and a functional–risk-based approach, allowing us to assess each entity’s economic contribution to value creation.
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Our analysis objectively confirms, in line with OECD Guidelines, that the allocation of profits between related parties is consistent with the arm’s length principle.

As part of the service, we prepare:
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1. Transaction profile and justification for the method: identification of the project scope and required input data, detailed analysis of functions, assets and risks for each party, assessment of whether the conditions for applying the profit split method are met.

‍2. Identification of profit allocation keys: selection of metrics reflecting each party’s economic contribution, analysis of potential weighting methods (costs, assets, DEMPE factors, operational indicators),selection of the optimal model (residual profit split or contribution profit split).

‍3. Construction of the profit split model: determination of the combined profit subject to allocation, calculation of remuneration for routine functions (where applicable),allocation of the residual profit based on the selected keys.

‍4. Preparation of the final arm’s-length justification: presentation of results in both tabular and descriptive form, confirmation of compliance with the arm’s length principle.

‍5. Documentation and argumentation: preparation of a draft analysis in Word format, including appendices with financial data and calculations, preparation of conclusions for Local File or Master File documentation, exchange of comments and delivery of the final version (approx. 15 pages in Word + Excel and PDF attachments).

‍Client outcomeThe analysis not only confirms compliance with the arm’s length principle but also ensures clarity in intra-group profit allocation processes, minimises tax risks, and prepares the organisation for potential audits.