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As detailed in B4.130 the first step in a transfer pricing analysis is to identify the commercial or financial relations between the associated enterprises and the conditions and economically relevant circumstances attaching to those relations.

The starting point for identifying the commercial or financial relations between associated enterprises and any relevant conditions and circumstances would be a broad based review of the industry sector in which the multinational enterprise (MNE) operates and the factors which affect performance such as business strategies, markets, products, its supply chain and the key functions and assets used and risks taken on.

This analysis would then be broken down further into what each enterprise does within the MNE and the transactions between them. Identifying and delineating a transaction requires an analysis of the conditions and economic circumstances within which the transaction took place, so that a transaction between independent persons in the same conditions and circumstances can be compared to the actual transaction between associated enterprises. The types of conditions can be broadly summarised under the headings that follow below¹.