We have several international subsidiaries setup to serve as sales offices. In setting these up we evaluated whether to set them up as resellers (they purchase the product from us and sell to customers) or as cost-plus entities (they are basically a service entity and get a fixed margin).
In the end we decided to set these up as cost-plus entities because we were not sure they could generate a profit as resellers which would cause a problem with the foreign tax authorities.
When a large company does this they will do a transfer pricing study (or have an accounting firm do one) to determine the right cost-plus structure to use but we don't want to go to that expense so we constantly worry about whether the "plus" we're using is ok. In some countries it seems like 5% is OK in others we're using 7% and it raises concerns with our accountants.
Does anyone have experience creating their own rationale for justifying their cost-plus basis? Or, does anyone have a sample transfer pricing study for software?