Treas. Reg. 1.482-4: Comparable Uncontrolled Price (CUP)

Treas. Reg. Section 1.482-4 is the comparable uncontrolled price (CUP) section of the section 482 regulations. The method compares the price charged in the controlled transaction with the price charged in an uncontrolled transaction for identical (or equivalently comparable) property or services, under comparable circumstances. It is the most direct test of the arm’s length principle the section 482 set contains — no PLI, no pool, no statistics: the uncontrolled price, or a narrow band of uncontrolled prices, is the arm’s length price.

Section purpose

In plain English, Section 1.482-4 says: where the market itself prices the property — where an uncontrolled sale of the same (or equivalently comparable) property exists under comparable circumstances — that price is the arm’s length charge. The section is the first preference in the US order of methods: the CUP, where it exists and the circumstances are comparable, displaces the profit-level methods, and the file that reaches for a margin method while a genuine uncontrolled price exists answers for the order.

The operative standard

• The identical-property core. The uncontrolled price for identical property or services, in comparable circumstances, is the arm’s length price — the provision’s core requirement, and the reason the method is the first preference. The internal CUP (the same party selling the same property to unrelated buyers) is the strongest form: same product, same seller, the market terms doing the comparison.
• The circumstances standard. Where the property is not identical, the comparison runs on equivalent property under comparable circumstances — the product characteristics (quality, functionality, specifications), the market conditions (the geographic market, the market structure), the contractual terms (quantity, payment terms, exclusive rights) and the economic conditions of the two markets. The difference that would materially affect the price is adjusted for, or the comparison is discarded.
• The comparability adjustments. The uncontrolled price is adjusted for the circumstances that differ between the controlled and the uncontrolled transaction — the grade, the packaging, the delivery terms, the volume, the credit terms — so the comparison is like-with-like. The adjustment is the method’s discipline: it must be supportable, and it must not paper over a difference the market would have priced.

Key elements

Element	The content
The comparison	The controlled price against the uncontrolled price for identical or equivalently comparable property or services
The core standard	The uncontrolled price for identical property, in comparable circumstances, is the arm’s length price — the first preference in the US order
The circumstances	The product characteristics, the market conditions, the contractual terms and the economic conditions — the comparability the method runs on
The adjustments	The price adjustments for the circumstances that would materially affect the price — like-with-like, or the comparison discarded
The evidence	The uncontrolled transactions: the third-party sales (the internal CUP), the market prices (the commodity exchanges, the spot prices, the published prices), the comparable uncontrolled sales in a comparable market
The order of preference	First in the US order — the Section 1.482-1 ranking that makes the CUP the method the examination expects where it exists

How it maps to the OECD method set

• The same method, the same first preference. The OECD’s CUP (the first of the five methods, the direct price test) is the Section 1.482-4 CUP in the OECD dialect — the CUP method guide carries the mechanics, the CUP glossary the term, and the methods overview the place in the set.
• The comparability adjustments are the shared discipline. The circumstances the Section 1.482-4 standard lists are the OECD’s comparability factors in the US formulation — the comparability adjustments glossary carries the adjustment types and the like-with-like standard.
• The dialect difference is at the edges. The US regulation’s circumstances list (the economic conditions of the two markets, the market conditions) is the explicit formulation of what the OECD guidelines treat through the comparability analysis — the substance is the same; the internal CUP and the commodity-price CUP are the strong cases in both regimes.

Practice notes for the Indian group with a US affiliate

• The CUP that answers both regimes is the cross-border asset. Where the Indian manufacturer sells the same component to unrelated third parties (the internal CUP), or where the commodity price is the market price (the external CUP), the price is defensible in both directions — the US examination’s first preference and the Indian file’s gold standard, on the same number. The CUP method guide carries the internal/external distinction.
• Check the CUP before reaching for the pool. The method decision runs on the order: the genuine uncontrolled price, documented with the terms, displaces the TNMM/CPM pool. The how to choose a method framework runs the decision tree; the US transfer pricing guide carries the cross-border map.
• The circumstances are the documentation. The CUP file is the price identity (the same or equivalent property) and the circumstances record (the terms, the market, the adjustments) — the documentation content the Section 1.6662-6 standard lists for the method, and the Rule 10D blocks’ equivalent in the Indian file.

Related docs

• US transfer pricing — the Section 482 overview
• Treas. Reg. 1.482-1 — the order of preference
• CUP method — the guide with worked examples
• Comparability adjustments — the like-with-like standard