Excluding Mismatched Comparables: A Single-Product Manufacturer vs. Diversified, 5x-Larger Peers

Client Snapshot Industry: Agro-processing manufacture of a single semi-finished product (a crude/crude-extract intermediate, comparable to chilli crude oil) supplied onward for further processing. Product profile:One semi-finished commodity output, not a finished, branded, or diversified product line Transaction under review: Related-party sales of the semi-finished product, benchmarked under the Transactional Net Margin Method (TNMM) The Challenge The comparable set the tax authority applied had two separate, compounding problems, and either one alone would have been enough to distort the benchmarking. Product mix. The client manufactures a single semi-finished product a crude extract sold on for further downstream processing, not a finished good sold to end customers. The comparables selected, by contrast, were diversified manufacturers producing multiple finished products across broader portfolios. A company selling several finished, branded products carries a different cost structure, margin profile, and risk allocation than a company selling one unprocessed intermediate the two aren't functionally comparable regardless of how similar the industry label looks on paper. Scale: On top of the product mismatch, the comparables' turnover ran to roughly five times the client's own. Turnover at that scale typically comes with economies of scale, stronger bargaining power with suppliers and customers, and diversification benefits that a smaller, single product manufacturer simply doesn't have access to all of which show up in the margin, independent of transfer pricing. Combined, the comparable set was being asked to represent a company profile the client didn't actually have on either dimension that matters for comparability: what it makes, and how big it is. A2's Approach

Rather than contest the outcome after the fact, we built the comparability challenge around the two factors Rule 10B(2) and Rule 10B(3) direct attention to when a material difference can be shown: the specific characteristics of the product, and the economic circumstances of the business, including its scale.

Product comparability

We set out the functional distinction plainly: a single semi-finished commodity product sold for further processing is not comparable to diversified, multi-product finished-goods manufacturers. The cost structures, value addition, and risk profiles diverge enough that no adjustment could reasonably bridge the gap the right response was exclusion, not normalization.

Turnover filter

Separately, we applied a turnover-based screen to the comparable set, arguing that companies at roughly five times the client's turnover fall outside a reasonable comparability range. This is a well-established filter in transfer pricing practice scale differences of that size are treated as a material economic circumstance under Rule 10B(2), not a detail to be adjusted away.

The Result The matter was resolved without either category of mismatched comparable being applied to the client's benchmarking — the diversified, multi-product companies were excluded on functional grounds, and the disproportionately larger companies were excluded on the turnover filter, rather than the client's margin being tested against either.

Key outcomes

• Diversified, multi-product comparables excluded on functional/product-mix grounds
• Comparables at roughly 5x the client's turnover excluded on a turnover filter
• Benchmarking concluded without either mismatched comparable set being applied
• Comparability argument built directly on Rule 10B(2)/10B(3) economic-circumstances grounds

Why This Matters Beyond This Case Single-product and early-scale manufacturers are especially exposed to this exact mismatch: tax authorities often default to an industry-level comparable search that pulls in larger, more diversified peers simply because they share an industry code, without testing whether the product mix or scale actually lines up. If your business makes one product, or is meaningfully smaller than the "obvious" comparables in your sector, that's worth checking before an assessment not after.