The budget speech of the Finance Minister in 2014 referred to
the concept of range and use of multiple year data to align Indian
Transfer Pricing regime with international best practices.
The Central Board of Direct Taxes (CBDT) in May 2015 issued a
draft scheme proposing the aforesaid concepts and suggestions were
invited from the stakeholders.
On the basis of the feedback received, the CBDT has now amended
(vide Notification No. 83/2015 dated 19 October 2015) the Rules for
determining the arm's length price (ALP) by introduction of
'Range concept' and 'Use of Multiple year data' for
comparability analysis. The amended Rules is applicable to both
international transactions as well as specified domestic
Use of multiple year data (current year and preceding two
financial years) is permissible only in case of specified methods
of determining ALP. In such cases, the weighted average price of
the comparable entities has to be computed in a specified manner
and shall be used to benchmark the transactions entered into by the
taxpayer. In cases where the list of comparables consists of less
than six entities, the arithmetical mean of such weighted average
will be regarded as ALP. It is expected that the use of multiple
year data would even-out the variations in the analysis of the
Under the range concept, if the price at which the transaction
has been undertaken is within the range, such price shall be deemed
to be ALP and no adjustment will be made. The range concept will be
applicable only in case of specified methods of determining ALP and
where the list of comparables consists of six or more entities. The
range will begin with the 35th percentile and end with the 65th
percentile of the list of entities. When the price at which the
transaction has been entered into does not fall within the range,
the median of the list will be taken as ALP.
The amended Rules will be applicable for computation of ALP of
transactions undertaken on or after 1 April 2014 i.e. from AY
The amended Rules may assist the taxpayers in benchmarking its
transactions in a more scientific manner and consequently may
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
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