Transfer Pricing Rules amended to incorporate “range concept” and “use of multiyear data” [Notification No. 83/2015, dated 19.10.2015]
Section 92C(2) provides that the arm’s length price (ALP) in relation to an international transaction or specified domestic transaction has to be determined by applying the most appropriate method.
As per the first proviso to section 92C(2), where more than one price is determined by applying the most appropriate method, the ALP shall be taken to be the arithmetical mean of such prices.
However, if the variation between the ALP so determined and the price at which the international transaction or specified domestic transaction has actually been undertaken does not exceed such percentage, not exceeding 3%, as may be notified by the Central
Government, the price at which the transaction has actually been undertaken would be deemed to be the ALP.
In the year 2014, the Finance Minister, in his budget speech, had proposed to introduce the “range concept” for determination of ALP, for aligning Transfer Pricing Regulations in India with the best practices.
Accordingly, a third proviso was inserted in section 92C(2) to provide that in case of an international transaction or specified domestic transaction undertaken on or after 1.4.2014, where more than one price is determined by the most appropriate method, the
ALP shall be computed in the prescribed manner (based on “range concept” to be specified by way of Rules) and the computation methodology given in the first and second proviso, based on arithmetic mean, shall be ignored.
The CBDT has, in exercise of the powers conferred by section 92C read with section 295 prescribed the manner of computation of arm’s length price applicable for international transactions and specified domestic transactions undertaken on or after 1.4.2014.