Transfer Pricing Directives

Transfer Pricing Directive: Transparency and Compliance Burden to MNCs in NepalAfter 23 years of issuing the extant Income Tax Act, 2002 (2058), the Inland Revenue Department (IRD), has issued the ‘Transfer Pricing Directive 2081’ (‘Directive). The need for Transfer Pricing (TP’) regime was spelled out in this year’s Budget Speech by the finance minister, wherein it was stated ‘transfer pricing guidelines should be formulated to control and minimize tax evasion from base erosion, profit transfer and income splitting.’Transfer prices are the prices at which an enterprise transfers physical goods and intangible property or provides services to associated enterprises. For purposes of these Guidelines, an “associated enterprise” is an enterprise that satisfies the conditions set forth in Article 9, sub-paragraphs 1a) and 1b) of the OECD Model Tax Convention.

As per the Transfer Pricing Directive issued by the Inland Revenue Department, transfer pricing documentation as mentioned in the Annex 1 of the Directive is to be maintained by taxpayer having foreign controlled transaction of equal to or more than one hundred million rupees. Further in case the amount of sale or purchase of goods or services between the associated enterprises exceeds more than five hundred million rupees, then then a certification as per Annex 2 is to be done by an auditor who is not a tax/ financial auditor and has experience of over five years.

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