For
the purposes of sub-rule (1), the comparability
of an international transaction with an uncontrolled
transaction shall be judged with reference to the
following, namely:-
- the
specific characteristics of the property transferred
or services provided in either transaction;
- the
functions performed, taking into account assets
employed or to be employed and the risks assumed,
by the respective parties to the transactions;
- the
contractual terms (whether or not such terms are
formal or in writing) of the transactions which
lay down explicitly or implicitly how the responsibilities,
risks and benefits are to be divided between the
respective parties to the transactions;
- conditions
prevailing in the markets in which the respective
parties to the transactions operate, including the
geographical location and size of the markets, the
laws and government orders in force, costs of labour
and capital in the markets, overall economic development
and level of competition and whether the markets
are wholesale or retail.
- An
uncontrolled transaction shall be comparable to an
international transaction if –
-
none of the differences, if any, between the transactions
being compared, or between the enterprises entering
into such transactions are likely to materially
affect the price or cost charged or paid in, or
the profit arising from, such transactions in
the open market; or
-
reasonably accurate adjustments can be made to
eliminate the material effects of such differences.
The data to be used in analysing the comparability of
an uncontrolled transaction with an international transaction
shall be the
data relating to the financial year in which the international
transaction has been entered into
- Provided
that data relating to a period not being more than
two years prior to such financial year may also be
considered if such data reveals facts which could
have an influence on the determination of transfer
prices in relation to the transactions being compared.
10C.
Most appropriate method
- For
the purposes of sub-section (1) of section 92C, the
most appropriate method shall be the method which
is best suited to the facts and circumstances of each
particular international transaction, and which provides
the most reliable measure of an arm’s length
price in relation to the international transaction
- In
selecting the most appropriate method as specified
in sub-rule (1), the following factors shall be taken
into account, namely:-
-
the nature and class of the international transaction;
-
the class or classes of associated enterprises
entering into the transaction and the functions
performed by them taking into account assets employed
or to be employed and risks assumed by such enterprises;
- the
availability, coverage and reliability of data
necessary for application of the method;
-
the degree of comparability existing between the
international transaction and the uncontrolled
transaction and between the enterprises entering
into such transactions;
- the
extent to which reliable and accurate adjustments
can be made to account for differences, if any,
between the international transaction and the
comparable uncontrolled transaction or between
the enterprises entering into such transactions;
-
the nature, extent and reliability of assumptions
required to be made in application of a method
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