5% Tolerance in Arm’s Length Pricing For Asst Yr 2012-13

Transfer pricing experts and companies with international operations and subsidiaries trading with each other got a pleasant surprise when they find a CBDT notification fixing tolerance level for Assessment Year 2012-13 at 5 % in case of variation in Arm’s Length Pricing . Significant to note that as per Finance Act 2012 , the tolerance level is fixed at 3% i.e for Assessment Year the tolerance level is just 3 % .

Here is the notification 5% Tolerance in Arm’s Length Pricing

SECTION 92 OF THE INCOME-TAX ACT, 1961 – TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE – NOTIFIED PERCENTAGE UNDER SECOND PROVISO TO SECTION 92C(2)

NOTIFICATION NO. 31/2012 [F.NO. 500/185/2011-FTD I], DATED 17-8-2012

In exercise of the powers conferred by the second proviso to sub-section (2) of section 92C of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where the variation between the arm’s length price determined under section 92C and the price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm’s length price for assessment year 2012-13