Must I target the median?

Not if you are inside the range. Targeting the median is a common risk-reduction policy choice, not a universal legal requirement.

Arm's length range — Definition, Example & Sources

Key facts about Arm's length range
Term	Arm's length range
Also called	Interquartile range; Benchmark range
Primary authority	OECD Transfer Pricing Guidelines, Chapter III, Section A.7 (OECD, 2022)
Source status	Primary source
Topics	Pricing methods
Most relevant to	In-house tax teams; Advisors & consultants; Students & job seekers
Most common audit trigger	Range so wide it cannot discriminate between outcomes.
Who owns it internally	Benchmarking team, applied by group tax in policy setting.
Last reviewed	2026-06-30

Plain English

Transfer pricing does not produce one right answer. It produces a band. If your result falls inside the band, you are generally fine. If it falls outside, expect an adjustment to a point inside — usually the middle.

Technical definition

A range of figures acceptable for establishing whether the conditions of a controlled transaction are arm's length, produced either by applying the same method to multiple comparable data or by applying different methods.

Why it matters

It defines the tolerance in your pricing policy and drives the size of any year-end adjustment.

How it works in practice

01Assemble the comparable results, typically over three years.
02Where comparability defects remain, narrow using the interquartile range.
03Compare the tested party result to the range.
04If outside, adjust — most authorities to the median, some to the nearer edge.

Worked example

Edge versus median

A tested party earns 1.8% against a range of 2.4% to 5.1% with a median of 3.4%. Adjusting to the nearer edge costs 0.6 points of margin; adjusting to the median costs 1.6. On revenue of 200m that difference is 2m of taxable profit, so the local rule on adjustment point matters commercially.

Common mistakes

Assuming the median is always the target.
Using a single-year range where the business is cyclical.
Reporting the full range when comparability defects require narrowing.

Audit red flags

Range so wide it cannot discriminate between outcomes.
Fewer than five comparables supporting a statistical range.

Documentation & data

Documents to hold

Range computation with the underlying data points.
Justification for the statistical treatment used.

Data you need

Multi-year comparable financials.
Tested party multi-year results.

Who owns this internally: Benchmarking team, applied by group tax in policy setting.

Jurisdiction notes

United States: The regulations set out specific conditions for using an unadjusted range versus the interquartile range.
OECD: Where the result falls outside, adjustment to the point that best reflects the facts is preferred, often the median.

Notes by role

In-house tax teams

Set the internal target above the lower quartile, not at it. Small operational variances then do not push you outside.

Frequently asked

Must I target the median?: Not if you are inside the range. Targeting the median is a common risk-reduction policy choice, not a universal legal requirement.

Related terms

Comparability analysis: The process of finding uncontrolled transactions or companies similar enough to test whether a controlled outcome is arm's length.
Transactional net margin method (TNMM): A method that tests the net profit margin a party earns from a controlled transaction against margins earned by independent companies.
Year-end adjustment: An adjustment made by the taxpayer before or at year end to bring a controlled outcome into the arm's length range.

Sources & status

Primary source
OECD Transfer Pricing Guidelines, Chapter III, Section A.7
OECD, 2022

Reference material only, not advice on a specific fact pattern. Reviewed 2026-06-30.

Careers

How this shows up in the job

Be ready to explain why an interquartile range is used at all. It tests whether you understand comparability defects.

Careers in transfer pricing

Key facts