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Informist, Saturday, Feb. 1, 2025

 

--BUDGET: Propose scheme for arms' length price of global deals in 3-yr blocs

 

NEW DELHI – The timeframe for calculating arm's length price for transfer pricing of international transactions of companies will now be for a block of three-year period, instead of yearly examinations, Union Finance Minister Nirmala Sitharaman said in her speech while presenting the Union Budget for the financial year 2025-26 (Apr-Mar) Saturday. The OECD Transfer Pricing Guidelines, which most countries follow, encourage using a multi-year analysis when determining an arm's length price.

 

Transfer pricing is an accounting practice that allows for the establishment of prices for the goods and services exchanged between divisions, subsidiaries or affiliates that are part of the larger enterprises. Usually, companies use transfer pricing to reduce the overall tax burden of the parent company. 

 

"To streamline the process of transfer pricing and to provide an alternative to yearly examination, I propose to introduce a scheme for determining arm's length price of international transactions for a block period of three years. This will be in line with global best practices," said Sitharaman.

 

 

Companies set transfer prices for transactions between its group members such that tax liability for the group as a whole is minimised. This involves setting transfer prices in a way that less profits are booked in countries with higher tax rates. The arm's length principle states that a related company transactions should be made at a price which could be charged from related entities, which is fair market price.  End

 

Reported by Surya Tripathi

Edited by Akul Nishant Akhoury

 

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