The government said on Tuesday said it has amended the Income Tax Rules for defining Arm's Length Price (ALP) to provide clarity in determination of price in transfer pricing cases and reduce disputes on the issue, an official statement said.
The amended rules allow for introduction of a "range concept" for determination of ALP and "use of multiple year data" for undertaking comparability analysis in transfer pricing cases, it said, adding range concept, being a statistical tool, enhances the reliability of analysis undertaken for computation of ALP.
It 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. Transaction price shown by the taxpayers falling within the range will be accepted and no adjustment will be made, said the finance ministry statement.
The use of multiple year data allows for yearly variations to be averaged out and would therefore add value to transfer pricing analysis.
The amended regime will be applicable for computation of ALP of international transactions and specified domestic transactions undertaken on or after April 1, 2014.
The Income Tax Act provides for determination of income having regard ALP in case of international transactions and specified domestic transactions. The manner of computation of ALP is laid down under the Income Tax Rules.