Transfer-pricing norms relaxed

The government came out with two solutions for transfer pricing disputes: Multiple year data and range of comparable prices

After announcing the rollback provisions for advance pricing agreements six months ago, the finance ministry on Tuesday came out with the remaining two solutions for transfer pricing disputes -multiple year data and range of comparable prices.

Finance Minister Arun Jaitley had announced all three measures - rollback provisions, multiple year data and range of comparable prices - in his maiden Budget a year ago.

A range of comparable prices are used to arrive at transfer pricing using the arm's length principle (ALP). ALP is used in transfer pricing when pricing is determined on the basis that parties to a transaction are independent and on an equal footing.

The amended rules allow introduction of a 'range concept' for determination of ALP to undertake the comparability analysis in transfer pricing cases.

"The range concept will be applicable in certain cases for determining the price and will begin with the 35th percentile and end with the 65th percentile of the comparable prices," says a Central Board of Direct Taxes notification.

The practice in other countries that follow OECD (Organisation for Economic Co-operation and Development) guidlelines is to allow the quartile range, that is from 25th percentile to 75th percentile.

"What makes India so different that it allows divergent norms?" asks Anis Chakravarty, a transfer pricing expert with Deloitte India.

Industry in its feedback had favoured quartile range of comparisons.

The notification also allows use of multiple year data for the purpose of comparing. It allows three years' comparison with a weighted average.