As you are aware, currently, for the purposes of determining the ALP, 5 methods have been prescribed under the Indian TP regulations. Further, the law gives power (since introduction of TP law) to the Central Board of Direct Taxes (CBDT) to prescribe any other method.
The CBDT has now prescribed the following (as Rule 10AB under IT Rules) under a notification given below-
"10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arms' length price in relation to an international transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts."
The above is applicable from Assessment Year 2012-13 onwards (i.e. accounting year beginning 1 April 2011 onwards).
Whilst, we would be sending you our detailed Newsflash on the subject, our initial thoughts..... The CBDT has now prescribed the following (as Rule 10AB under IT Rules) under a notification given below-
"10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arms' length price in relation to an international transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts."
The above is applicable from Assessment Year 2012-13 onwards (i.e. accounting year beginning 1 April 2011 onwards).
The new method is in line with the OECD Guidelines. As can be seen, the scope of the new method seems broad providing flexibility to taxpayers to choose any method provided it satisfies the arm’s length test (i.e. takes into account the price which ”has been charged or paid” between non associated enterprises in an uncontrolled transaction). In our view, the important change is that the new method introduces price which “would have been charged or paid” ie it seems introducing the concept of “hypothetical” arms length test. This is likely to benefit tax payers where reliable comparable uncontrolled transactions cannot be identified.
INCOME-TAX (SIXTH AMENDMENT) RULES, 2012 - INSERTION OF RULE 10AB
NOTIFICATION NO. 18/2012 [F. NO.
In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962 namely:-
1. (1) These rules may be called the Income-tax (6th Amendment) Rules, 2012.
(2) They shall come into force on the 1st day of April, 2012 and shall apply to Assessment year 2012-13 and subsequent years.
2. In the Income-tax Rules, 1962 (hereinafter referred to as the said rules), after rules 10A, the following rule shall be inserted, namely:-
"Other method of determination of arm's length price
10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arms' length price in relation to an international transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts."
3. In rule 10B of the said rules, in sub-rule (1) after clause (e), the following clause shall be inserted, namely:-
"(f) Any other method as provided in rule 10AB."
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