Draft norms for 'Range Concept' in transfer pricing released

The tax department today came out with draft norms for introduction of 'range concept' for calculating Arm's Length Price for valuing transactions between related entities for the purpose of taxation.
The Central Board of Direct Taxes (CBDT) has proposed to use multiple year data for determining the Arm's Length Price. At present, only one year data is used for calculating Arm's Length Price.
The draft norms follow an announcement by Finance Minister Arun Jaitley in his 2014 Budget with a view to aligning transfer pricing regulations in India with the best available practices.
As per the draft norms, on which the comments have been invited till May 31, the 'range concept' will be used for determination of Arm's Length Price of goods and services traded between related entities.

Arm's Length Price, which is used to determine the cost of goods or services traded between related entities, has a bearing on the profitability and tax liability.
Since its introduction in 2001, transfer pricing regulations have been a major area of litigation between the tax department and tax payers. Tax payers, which are mainly MNCs, usually blame the tax department of being aggressive in imposition of taxes to garner more revenues.

It has been clarified that the 'range concept' will only apply where a minimum of nine comparable data about similar transactions are available. In case the number of comparable data is inadequate, the existing provision of 'arithmetic mean concept' will apply.

The use of multiple year data, experts said, would provide relief to the companies as they find it difficult to provide comparable data for the immediate previous year.
The proposed modifications to transfer pricing rules were announced in 2014 Budget to reduce litigation.
"In order to align Transfer Pricing regulations in India with the best available practices, I propose to introduce range concept for determination of Arm's Length Price," Jaitley had said.
"As per existing provisions of Transfer Pricing Regulations, only one year data is allowed to be used for comparable analysis with some exception. I propose to amend the regulations to allow use of multiple year data," he had added.