Allow Taxpayer to Determine Arm’s Length: CII

+/- 10% Should be Permitted Price Range for International Transactions: CII; Provide Minimum Threshold Transaction Value for Transaction Pricing Regulations: CII

CII has recommended that taxpayers be given the flexibility to use a method which is most relevant in their business operations to determine arm’s length price in the case of transfer pricing, said a release quoting the pre-budget recommendations of CII. According to section 92C, the arm’s length price in relation to an international transaction is to be determined by any of the five specific methods prescribed by the CBDT, or any other method prescribed by the Board. Current provisions do not give the taxpayers the flexibility to use any method other than the prescribed ones. CII feels that once the flexibility is given to the assessee to select a particular method other than the methods prescribed by the Board, the onus of proving that the method applied is more appropriate would lie with the assessee.

The CII press release went on to say that while determining arm’s length price in case of international transactions with an associated enterprise, the Finance Act 2002, has permitted a price range of (+/-) 5% of the price determined as per the prescribed methods. However, CII feels that the range prescribed by the CBDT is on the low side and needs to be increased. In its pre-budget recommendation, CII has suggested that this range be increased to (+/-) 10%.

In its pre-budget recommendations, CII has also sought that a minimum threshold value be specified for applicability of transfer pricing regulations. The release went on to say that transfer pricing regulations contained in sections 92A to 92F of the Act provide for the maintenance of information & documents in respect of international transactions entered into between associated enterprises, either or both of whom are non-residents. Transfer pricing regulations kick in the moment an international transaction is entered into by an Indian resident with a non-resident associated enterprise irrespective of the value of such a transaction. As a result, the cost of compliance is sometimes more than the value of the international transaction entered into. Therefore, CII has suggested that a minimum threshold transaction value be specified, beyond which only the transfer pricing regulations in sections 92A and 92F would apply. The threshold may be pegged at the same level as the monetary limit specified in section 44AB of the Act for getting a tax audit conducted the CII recommendation has suggested.