Education
From the University of Connecticut in 1953, and his Doctor of Philosophy from the University of Chicago in 1956.
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Charles Berry
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He is well known for his derivation of the Berry Ratio, an analytical tool used extensively by tax and transfer pricing analysts over the world. Berry consulted with numerous government agencies, corporations, and law firms on antitrust and regulatory issues, transfer pricing, and corporate taxation. Berry earned his Bachelor of Science from McGill University in 1951, his Master of Science
He was an assistant professor at Yale University and a senior staff member at the Brookings Institution before joining the Princeton faculty in 1966 as an associate professor of economics and public affairs
He was promoted to professor in 1971. In addition, he was the master of Rockefeller College from 1986 to 1990.
Berry died September 2, 2007, due to complications from cancer. In the case of East.I. DuPont de Nemours & Company v.
United States, 608 F.2d 445 (Ct Citation Index 1979) ("the DuPont case"), Berry served as an expert witness on behalf of the United States. government.
At issue was the "proper," arm"s length compensation that a Swiss subsidiary of DuPont, a distributor, should earn on the distribution services it performed in Switzerland on behalf of the parent. In his analysis, Berry determined that the best method for determining an arm"s length result was to compare the Swiss distributor"s markup on operating expenses to the same markup earned by uncontrolled (ie, third-party) distributors performing substantially similar functions. Berry"s key insight in the case was that distributors should earn a return commensurate with the distribution services performed.
The value of the products being distributed, in other words, was irrelevant.
The Internal Revenue Service defines the ratio now, awkwardly, as the "Ratio of Gross Profits to Operating Costs". To reflect the reality of distributors" economic significance and to provide an arm"s length return to DuPont"s Swiss subsidiary, Berry utilized a ratio that has since been named in his honor:
Berry Ratio = Gross Profit/Operating Expenses
The Berry Ratio remains, to this day, a mainstay of transfer pricing analysis where a distributor serves as the tested party.
Like most metrics that are based on data available in corporate accounts, the Berry ratio misses the value of the intangible costs needed to maintain the intangible property of a corporation. Since the non-routine income generated by intangibles is the main contributor to corporate earnings, and after taxes, to corporate profit the Berry ratio does not provide an adequate metric for the party that owns intangibles, but does show what routine functions captured in operating expenses should earn.
