transactional net margin method (TNMM)

A common method used for justifying the transfer pricing of a company where one of the parties to the transaction does not contribute to valuable or unique intangible assets. In determining an arm's length net profit margin, TNMM compares the net profit of a company involved in a non-arm's length transaction with an appropriate base-line of sales, costs and assets employed in similar transactions with adjustments made based on the actual circumstance of the transaction.