In an effort to make tax policies more transparent and investor-friendly, the Finance Ministry now proposes to use multiple years’ data to analyse transfer pricing cases.
Transaction price falling in the specified range will be accepted and no adjustment will be made by the tax authorities, a Ministry statement said.
The use of multiple year data would average out any variations in a particular year and improve the transfer pricing analysis. The Ministry has notified amended rules for transfer pricing that are aimed to reduce litigation which includes the introduction of a “range concept” for determining arm’s length price and “use of multiple year data” for undertaking comparability analysis in transfer pricing cases.
“The range concept will be applicable in certain cases for determining the price and will begin with the 35{+t}{+h} percentile and end with the 65{+t}{+h} percentile of the comparable prices,” said an official release.
Finance Minister Arun Jaitley had in the Union Budget 2015-16 announced that a “range concept” for calculating the arm’s length price would be introduced.
Additionally, the Finance Ministry has also issued fresh guidelines for transfer pricing cases mandating that these should be picked up for scrutiny based on their risk profile. It has also reduced the number of cases that should be handled by each transfer pricing officer (TPOs).
The twin moves comes at a time when the government is trying to improve the ease of doing business in the country. The assurance of a stable and transparent tax regime is considered one of the key factors for investments by foreign companies.
In a guidance note on transfer pricing cases, the Central Board of Direct Taxes has said each transfer pricing officer (TPO) should handle only 50 important and complex cases as against the current limit of 70 cases.
The CBDT, which is the nodal agency for direct tax policies, said guidelines will also soon be formed to define what constitutes “important and complex” cases, adding that guidelines for domestic transactions are also being worked out.