Independence Indicator — Independence Indicator is a classification code used in commercial databases (particularly Bureau van Dijk's Orbis and Amadeus) to identify a company's ownership structure and degree of independence from parent companies.
Independence Indicator is a classification code used in commercial databases (particularly Bureau van Dijk's Orbis and Amadeus) to identify a company's ownership structure and degree of independence from parent companies. In transfer pricing benchmarking, independence indicators filter out companies with controlling shareholders—ensuring comparable companies are truly independent and their financial results are not distorted by related-party transactions.
The Bureau van Dijk (BvD) Independence Indicator uses letter codes A through D (plus U for unknown) based on the percentage of ownership held by shareholders.
OECD/Regulatory Reference
The OECD Transfer Pricing Guidelines (2022) require that comparables be independent—not subject to controlled transactions that would affect their profitability. The Guidelines (in Chapter III) note that identifying comparables requires a search for uncontrolled transactions whose characteristics are sufficiently similar to the controlled transaction.
While the OECD doesn't prescribe specific database indicators, the principle is clear: comparable companies must be independent parties whose results reflect arm's length market conditions.
US Treasury Regulations §1.482-1(d)(1) similarly require comparables to be "uncontrolled"—transactions or companies not influenced by related-party relationships.
In Practice
The BvD Independence Indicator is the industry standard for screening company independence:
Code
Meaning
Ownership Threshold
Use in TP
A
No shareholder with >25% direct or total ownership
Most independent
✅ Accept
A+
No shareholder with >25% direct ownership, no identified shareholder
Highly independent
✅ Accept
A-
No shareholder with >25% direct ownership, some shareholder info missing
Likely independent
✅ Accept
B
No shareholder with >50% direct or total ownership
Substantially independent
✅ Accept
B+
No shareholder with >50% direct ownership
Substantially independent
✅ Accept
B-
No shareholder with >50% direct ownership, some info missing
Substantially independent
⚠️ Review
C
Shareholder with >50% but independence not fully known
Potentially controlled
⚠️ Caution
D
Shareholder with >50% direct or total ownership
Controlled entity
❌ Reject
U
Unknown ownership structure
Cannot verify independence
❌ Usually reject
Standard Practice:
Accept: A, A+, A-, B, B+
Review carefully: B-, C
Reject: D, U
A and B are Safe Defaults: Most transfer pricing practitioners accept companies with BvD indicators A or B. These have no majority shareholder and are presumed to operate independently. C and D companies should generally be excluded or subjected to additional scrutiny.
Check whether the 48% shareholder is an industrial investor (potentially acceptable) or a multinational group (potentially problematic)
Review for intercompany transactions in financial statements
If no evidence of related-party influence, may include with documentation
Beyond the Indicator: Additional Independence Checks
Independence indicators are a starting point, not the final answer. Even companies with A or B ratings may have independence issues:
Additional Check
What to Look For
Related-party transactions
Material intercompany sales, services, or loans
Corporate group membership
Part of multinational structure (even minority ownership)
Common management
Shared directors or executives with other companies
Financial statements
Notes disclosing related-party transactions
Recent ownership changes
Former subsidiary now "independent"
Indicator ≠ Guarantee: A company with BvD indicator "A" may still have significant related-party transactions if it trades with affiliated companies through minority ownership structures. Manual review should verify no material intercompany influence.
When reviewing a company longlist, benchmarking software can help organize the screening record. Check ownership and related-party information against the relevant sources; an AI description does not establish independence.
Why do independence indicators matter for transfer pricing?
Comparable companies must reflect arm's length market conditions. Companies controlled by parent entities may have intercompany transactions (management fees, royalties, financing) that distort their reported profitability. Independence indicators identify companies operating without controlling shareholders—ensuring their results represent what independent parties would achieve.
Should I always exclude companies with indicator C or D?
D should generally be excluded—these are controlled entities. C requires case-by-case review—ownership is unclear but may be acceptable. If a company with indicator C has no material related-party transactions disclosed in financial statements, it may be includable. Document your reasoning for including any C-rated company.
Can a company with indicator A still have comparability issues?
Yes. Independence indicators address ownership, not functional comparability. A company may be fully independent (indicator A) but perform different functions than your tested party. Independence is necessary but not sufficient for comparability. Both independence and functional similarity are required.
What if the database shows indicator U (unknown)?
Generally exclude U-rated companies—you can't verify they're independent. However, if the company is clearly relevant and other sources confirm independence (annual reports, regulatory filings), you may include it with documentation. Tax authorities may challenge U-rated comparables, so err on the side of caution.
Do different databases use the same independence indicators?
The BvD indicator system is specific to Bureau van Dijk databases (Orbis, Amadeus, TP Catalyst). Other databases (Compustat, OneSource) may use different ownership metrics or no standardized indicator. When using non-BvD databases, manually verify ownership structures using shareholder data fields.
How do I handle companies where ownership recently changed?
If a company was recently acquired or divested, consider whether its financial data reflects the ownership period. A company independent for 3 of 4 years in your analysis period may be acceptable—document the ownership change. If the ownership change occurred mid-year, consider whether to use only independent-period data.
Should I require the same independence indicator for all comparables?
No, but apply a consistent threshold. Most practitioners accept A and B indicators together. If you include B-rated companies, you should also include A-rated companies. Don't cherry-pick independence levels to achieve desired results. Document your acceptance criteria and apply them uniformly.