Transfer Pricing in Nepal: Examples and FAQs

Check out my other post on the Transfer Pricing Guideline 2081 of Nepal, which provides an introduction to the recently implemented guidelines, along with a concise overview of the arm’s length principle, comparability analysis, and the associated documentation and assessment provisions.

However, in contrast, this post is more focused on understanding the illustrative examples from the guideline, some formula and arithmetic behind the different transfer pricing methods and relevant FAQs in the context of this newly introduced transfer pricing guideline.

Chapter 1: Introduction

💡Where do you place this “Transfer Pricing Guideline”?
The “Transfer Pricing Guideline, 2081” was introduced under the authority granted to the Inland Revenue Department under the Income Tax Act, 2058 (2002) and the Income Tax Regulation, 2059 (2002). As outlined in Para 1.3(2) of the guideline, it is intended to guide the application, practice, and interpretation of the Income Tax Act and Regulation. However, it holds a subordinate position to these legal frameworks, meaning it is applied within the scope of the Act and Regulation. Specifically, it aligns with the provisions of Section 33 of the Income Tax Act, 2058, which addresses transfer pricing and related tax management for associated entities. This section allows the tax authority to allocate, distribute, or adjust taxable income or taxes between associated persons to reflect what would occur under arm’s length conditions.

Provision outlined in Section 33 of the Income Tax Act, 2058:
सम्बद्ध व्यक्तिहरूबीच मूल्य हस्तान्तरण (ट्रान्सफर प्राइसिङ्ग) र अन्य प्रबन्धहरूः
३३(१) सम्बद्ध व्यक्तिहरू बीच कुनै व्यवस्था भएकोमा सो व्यवस्था सामान्य बजार व्यवहार (आर्म्स लेन्थ) अनुसार सञ्चालन गरीएको भए तिनीहरूको लागि कायम हुनसक्ने करयोग्य आय वा बुझाउन पर्ने कर प्रतिविम्बित हुने किसिमले ती व्यक्तिहरू बीच आय गणना गर्दा समावेश वा कट्टी गरीने रकमहरू विभागले लिखित रूपमा सूचना जारी गरेर वितरण, विनियोजन वा बाँडफाँट गर्न सक्नेछ ।
३३(२) उपदफा (१) मा उल्लिखित कुनै कुरा गर्दा विभागले देहायबमोजिम गर्न सक्नेछः- (क) कुनै आय, नोक्सानी, रकम वा भुक्तानीको स्रोत र किसिमलाई पुनः चारित्रीकरण गर्न, वा (ख) कुनै व्यवसाय सञ्चालन गर्न कुनै व्यक्तिले मुख्य कार्यालय खर्च लगायत गर्नु परेको विभिन्न खर्चबाट, सम्बद्ध व्यक्ति वा व्यक्तिहरूलाई फाइदा पुग्न गएकोमा त्यस्तो खर्च व्यवसायको कारोबारको तुलनात्मक आधारमा सम्बद्ध व्यक्तिहरूबीच बाँडफाँट गर्न ।
३३(३) यस दफाबमोजिम सम्बद्ध व्यक्तिबीच हुने हस्तान्तरण मूल्य (ट्रान्सफर प्राइसिङ्ग) को मूल्याङ्कन विधि विभागले निर्धारण गरे बमोजिम हुनेछ ।

💡When does this Guideline begin to apply?
The “Transfer Pricing Guideline, 2081” will come into effect from the fiscal year 2081/2082. According to Para 1.4(2) of the guideline, it states that “this guideline will be applicable from the fiscal year 2081/082.” This when read with the scope defined in Para 1.3(1) means that all cross-border transactions between associated enterprises will need to comply with the guideline starting from the fiscal year 2081/2082.

💡Who does this Guideline apply to?
This guideline applies to parties engaged in cross-border transactions with related parties, as defined in Para 1.3(1) of the guideline. It specifically targets the pricing of these transactions to ensure compliance with fair market value principles, aligning with the concept of “स्वतन्त्र कारोबार” (independent transactions) characterized by transactions conducted at arm’s length.
According to Para 6.1, the guideline establishes a framework for maintaining records related to “सीमापार नियन्त्रित कारोबार” (cross-border controlled transactions), which refers to transactions between associated persons across two or more countries. Taxpayers must adhere to the specified documentation formats outlined in Annexure 1 and Annexure 2 to facilitate proper evaluation of these transactions and determine necessary adjustments for tax purposes.
In accordance with Section 96 of the Act, every individual is required to submit an income statement, and any additional information specified by the department must also be included. Consequently, individuals required to comply with this guideline must present the auditor-certified documentation as outlined in Annexure 2 alongside their income statements.
However, it is important to note that these documentation requirements do not apply to cross-border controlled transactions where the annual transaction volume does not exceed NPR 100 million. This exclusion acknowledges the varying scale of transactions and the potential administrative burden on smaller entities involved in “नियन्त्रित कारोबार” (controlled transactions), which include the exchange of goods, services, or assets that can impact the income, profit, loss, assets, or liabilities of the involved parties.

Here are the relevant definition from para 2.1 of the Transfer Pricing Guideline, 2081:
(प) स्वतन्त्र कारोबार: “स्वतन्त्र कारोबार” भन्नाले सामान्य बजार (आर्म्स लेन्थ) मूल्यअनुसार हुने कारोबार सम्झनुपर्छ ।
(घ) सीमापार कारोबार: “सीमापार कारोबार” भन्नाले दुई वा दुई भन्दा बढी देशबीच हुने वस्तु वा सेवा वा सम्पत्ति वा ऋणको कारोबार सम्झनुपर्छ । साथै, सो शब्दले सो निकायको आय, मुनाफा, नोक्सानी, सम्पत्ति वा दायित्वमा प्रभाव पार्ने अन्य कुनैपनि व्यवसायिक गतिविधि वा वित्तीय कारोबारलाई समेत जनाउनेछ ।
(झ) नियन्त्रित कारोबार: “नियन्त्रित कारोबार” भन्नाले सम्बद्ध व्यक्तिहरू बीच हुने वस्तु वा सेवा वा सम्पत्ति वा ऋणको कारोवार सम्झनुपर्छ । साथै, यस शब्दले यस्ता व्यक्तिहरूको आय, मुनाफा, नोक्सानी, सम्पत्ति वा दायित्व प्रभाव पार्ने अन्य कुनैपनि व्यवसायिक गतिविधि वा वित्तीय कारोबारलाई समेत सम्झनुपर्छ ।
(न) सीमापार नियन्त्रित कारोबार: “सीमापार नियन्त्रित कारोबार” भन्नाले दुई वा दुई भन्दा बढी देशहरू बीच रहेका सम्बद्ध व्यक्तिहरू बीच हुने सीमापार कारोबारलाई सम्झनुपर्छ ।

💡Who to call for Transfer Pricing Analysis?
According to the Transfer Pricing Guideline 2081, auditors who certify transfer pricing documentation in Nepal must meet specific qualifications:
General Qualification: As per Para 6.3.1, only auditors registered with the Institute of Chartered Accountants of Nepal (ICAN) and holding a professional certificate under Section 28 of the Nepal Chartered Accountants Act, 2053 are authorized to certify transfer pricing documents.
Additional Requirements for High-Value Transactions: Para 6.3.2 of the directive applies to companies with cross-border transactions involving goods or services over NPR 50 crore. In these cases, the certification must come from an auditor separate from the one performing the financial or tax audit. This auditor is also required to have at least five years of experience in auditing.
NSA 4400 guides auditors certifying transfer pricing documentation by outlining a framework for performing agreed-upon procedures. The auditor collaborates with the entity to define specific procedures relevant to assessing compliance with transfer pricing regulations, documented in an engagement letter. After executing these procedures—such as verifying the arm’s length nature of transactions—the auditor reports the factual findings without providing assurance. This standard ensures a transparent and focused process, enhancing the credibility of the entity’s transfer pricing practices.

Chapter 2: Definitions

उदाहरण २.०

बासिन्दा व्यक्तिलाई गैर बासिन्दा व्यक्तिद्वारा कर्जा प्रदान गरेको अवस्था: माथि उल्लेखित परिवेशमा एक्सटेप लि, जो एक गैह बासिन्दा व्यक्ति हो, यसले गणेश लि., एक बासिन्दा व्यक्तिलाई नेपालमा कर्जा उपलब्ध गराउँदछ र एक्सटेप लि.को गणेश लि. मा २५% भन्दा धेरै निहित स्वामित्व (३३%×८०%=२६.४%) राख्दछ, यस्तो अवस्थामा गणेश लि.लाई एक्सटेप लि. द्वारा नियन्त्रित निकाय मानिन्छ। साथै, गणेश लि.ले एक्सटेप लि.लाई प्रदान गर्ने व्याज रकमको गणना ऐनको दफा १४ को उपदफा (२) बमोजिम गर्नुपर्दछ ।

💡Interest deduction for Exempted Controlled Entity “Thin Capitalization Rule”
For entities controlled by tax-exempt organizations, Section 14 of the Income Tax Act, 2058 sets specific rules regarding interest deductions. These entities, referred to as “exempt-controlled entities,” are subject to special limitations when deducting interest payments made to the controlling entities.
A resident entity controlled by a tax-exempt organization can deduct interest paid to the controlling organization or related persons. However, this deduction is capped. The allowable interest deduction cannot exceed the sum of the interest income earned by the entity in that year, plus 50% of the entity’s taxable income (before accounting for any interest income or deductions). This rule is in place to prevent exempt-controlled entities from reducing their taxable income excessively through interest payments, ensuring that interest deductions align with the actual income generated by the entity. If, however, the full deduction for the interest paid to the controlling entity is not allowed due to these limitations, the remaining undeducted interest can be carried forward to future years for deduction under the same condition. This ensures that the entity has the opportunity to utilize the interest deduction in years where the income level may be higher. In essence, these rules provide a framework to prevent misuse of interest deductions while allowing exempt-controlled entities to deduct legitimate interest payments within reasonable limits.

💡What is a “resident entity controlled by a tax-exempt organization”?
Explanation note to Section 14 of the Income Tax Act, 2058 provides that a “resident entity controlled by a tax-exempt organization” means an entity that is a tax-resident during the year and is owned or controlled – by at least 25% – by any of the following at any time that year: (a) An organization entitled to tax exemption and a person associated with that organization, (b) A person entitled to tax exemption pursuant to Section 11 in that year or a person associated with that person, (c) A non-resident person or a person associated with the non-resident person, or (d) Any combination of the persons referred to in clauses (a), (b) and (c).

💡What is so particularly interesting about the interest deduction provision to an exempt-controlled entity under Section 14 of Income Tax Act, 2058?
The provision in Section 14 for interest deduction for an exempt-controlled entity works like a “legally deemed transfer pricing arrangement.” While not explicitly transfer pricing, it limits or defers transactions with related parties, essentially preventing tax avoidance.
Several laws in Nepal contain provisions similar to those regulating interest deductions for exempt-controlled entities, similar “legally deemed transfer pricing arrangement.”:
1. Royalty Rate Limitation: Rule 5 of the Foreign Investment and Technology Transfer Rule, 2077 sets limits on royalty rates that foreign investors can charge Nepali companies. These limits vary based on the nature of the royalty—whether it relates to technology transfer, trademarks, or other areas—and depend on the industry and whether the fee is calculated as a percentage of sales or net profit.
2. Thin Capitalization Rule: In addition to Section 14 of the Income Tax Act, 2058, the Income Tax Directive, 2077 states that even if a loan follows the arm’s length principle, if the capital investment of the parent company is below the required ratio of assets and capital, the excess portion of the loan will be treated as equity and only the remaining amount will be considered a loan.
3. Deemed transaction at market values: Section 12 of the VAT Act, 2052 allows authorities to adjust taxable values if related-party transactions aren’t at arm’s length. Rule 54 of the Customs Rules, 2064 provides similar powers for customs valuation, enabling adjustments if imported goods are declared below fair market value, with additional customs duties applied.
4. Competition and Consumer Protection: Although focused on preventing anti-competitive practices, Nepal’s competition laws can also impact transfer pricing. If transfer pricing arrangements harm consumer rights or distort market competition, penalties can be imposed.
5. Arm’s Length Principle in Tax Treaties: Nepal’s bilateral tax treaties incorporate the arm’s length principle, which is vital for preventing double taxation and ensuring fair transactions between related parties across borders.
6. DTA Limitation on Benefits: Section 73(5) of the Income Tax Act, 2058 restricts entities with over 50% non-resident ownership from claiming benefits under Double Tax Avoidance Agreements (DTA), which can lead to a loss of reduced tax rates or exemptions.

उदाहरण २.१

कुनै एक व्यक्तिले प्रत्यक्ष वा अप्रत्यक्ष रूपले अर्को व्यक्तिको ५० प्रतिशत भन्दा बढी स्वामित्व धारण गरेको अवस्था । माथिको रेखा चित्रअनुसार अल्फा लिमिटेडले ओमेगा लिमिटेडको प्रत्यक्ष रूपमा ८० प्रतिशत स्वामित्व धारण गरेको छ र ओमेगा लिमिटेडले बेटा लिमिटेडको प्रत्यक्ष रूपमा ७५ प्रतिशत स्वामित्व धारण गरेको छ । यस अवस्थामा अल्फा लिमिटेडको ओमेगा लिमिटेडमा प्रत्यक्ष स्वामित्व रहेको र बेटा लिमिटेडमा पुँजीमाथि (८०% × ७५% = ६० प्रतिशत) निहित स्वामित्व रहेको छ । माथि उल्लेख गरीएको अवस्थाअनुसार ओमेगा लिमिटेड तथा बेटा लिमिटेड दुवै अल्फा लिमिटेडको सम्बद्ध व्यक्ति हुन् । त्यसैगरी, ओमेगा लिमिटेड तथा बेटा लिमिटेड दुवै एक आपसमा समेत सम्बद्ध व्यक्ति हुन् । (एक अर्काको मनसायअनुसार काम गर्ने)

💡What is an associated person?
The term “associated person,” as defined in Section 2(Ka.Na) of the Income Tax Act, 2058, refers to individuals or entities that operate in accordance with the intentions of another party, indicating a strong connection or influence over decision-making. The definition specifies certain relationships that qualify as associated persons, including:
1. Natural Persons and Their Relatives or Partners: This includes individuals with familial or business ties, highlighting the interpersonal relationships that establish association.
2. Foreign Permanent Establishments and Their Owners: This refers to the relationship between a foreign entity and the individual who owns it, establishing a link between the entity’s operations and its proprietor.
3. Entities Controlling or Benefiting from Over 50% of Another Entity’s Income, Capital, or Voting Rights: This clause addresses situations where one entity, or a related group of entities, exerts significant control or derives benefits from another entity through ownership or voting power.
4. Exceptions: The definition excludes employees, and any individuals deemed “not associated” by the Inland Revenue Department.

💡But the definition is ambiguous and that is a problem.
दफा २(कन) सम्बद्ध व्यक्ति: “सम्बद्ध व्यक्ति” भन्नाले एक अर्को व्यक्तिको मनसायअनुसार काम गर्ने एक वा एकभन्दा बढी व्यक्ति वा त्यस्ता व्यक्तिहरूको समूह सम्झनुपर्छ र सो शब्दले देहायका व्यक्तिहरू समेतलाई जनाउँछः-
(१) प्राकृतिक व्यक्ति र सो व्यक्तिको नातेदार वा कुनै व्यक्ति वा सो व्यक्तिको साझेदार,
(२) विदेशी स्थायी संस्थापन र सो संस्थापनमा स्वामित्व भएको व्यक्ति, र
(३) कुनै निकाय आफै वा आफूसँग सम्बन्धित अन्य व्यक्ति वा सहयोगी निकाय वा त्यस्ता सहयोगी निकायसँग सम्बन्धित अन्य कुनै व्यक्ति वा निकायसँग मिलेर कुनै निकायको आय, पूँजी वा मताधिकारको पचास प्रतिशत वा सोभन्दा बढी हिस्सा नियन्त्रण गर्ने वा सोबाट फाइदा प्राप्त गर्ने निकाय ।
तर देहायका व्यक्ति सम्बद्ध व्यक्ति हुने छैनः- (१) कर्मचारी, (२) विभागले सम्बद्ध व्यक्ति होइन भनी तोकेको व्यक्ति ।
The definition leaves room for interpretation. The opening line – “सम्बद्ध व्यक्ति भन्नाले एक अर्को व्यक्तिको मनसायअनुसार काम गर्ने एक वा एकभन्दा बढी व्यक्ति वा त्यस्ता व्यक्तिहरूको समूह सम्झनुपर्छ,” which translates to “associated person refers to one or more persons or a group of persons acting in accordance with the intention of another person”- is broad and can lead to subjective interpretations. This phrase suggests that any relationship in which individuals or entities align with each other’s intentions, whether formally or informally, may be considered “associated.”
Although the provisions of the NAS 24: Related Party Disclosure and Section 92A of the Income Tax Act, 1961 of India are not discrete provisions of the transfer pricing guidelines of Nepal, they can serve as a framework for establishing associated person relationships, especially in cases where ambiguity or interpretation arises because they are certain to have interpretative and persuasive value in case of disputes. More on that: Link here.

💡Who is a relative?
Para 2.1(Chha) of the Transfer Pricing Guideline, 2081 defined नातेदार: “नातेदार” भन्नाले प्राकृतिक व्यक्तिको पति, पत्नी, छोरा, छोरी (धर्मपुत्र, धर्मपुत्री समेत), बाबु, आमा, बाजे, बज्यै, दाजु, भाइ, भाउजु, बुहारी, दिदी, बहिनी, सासु, ससुरा, साला, जेठान, साली, जेठी सासु, काका, काकी, भतिजा, भतिजी, नाति र नातिनी सम्झनुपर्छ । This includes members from immediate family, extended family and in-laws’ family as well. It includes Spouse: पति, पत्नी, Children: छोरा, छोरी (धर्मपुत्र, धर्मपुत्री समेत), Parents: बाबु, आमा, Grandparents: बाजे, बज्यै, Siblings: दाजु, भाइ, दिदी, बहिनी, Spousal in Laws: सासु, ससुरा, साला, जेठान, साली, जेठी सासु, Siblings in Laws: भाउजु, बुहारी, Uncles and Aunts: काका, काकी, Nieces and Nephews: भतिजा, भतिजी, Grandchildren: नाति र नातिनी

उदाहरण २.२

कुनै व्यक्ति वा व्यक्तिले प्रत्यक्ष वा अप्रत्यक्ष रूपमा शेयर स्वामित्व धारण गरी त्यस्तो व्यक्तिको ५० प्रतिशत मताधिकार प्राप्त गरेको अवस्था । श्री कृष्णको अरनिको लि. तथा भृकुटी लि. दुवैमा ५० प्रतिशत मताधिकार रहेको छ । अरनिको लि. तथा भृकुटी लि. दुबैको एक अर्को कम्पनीमा स्वामित्व रहेको छैन । श्री कृष्णले अरनिको लि. तथा भृकुटी लि. दुवैमा ५० प्रतिशतले मत दिने अधिकार पाएको छ । यस अवस्थामा अरनिको लि. तथा भृकुटी लि. दुबै सम्बद्ध व्यक्तिको रूपमा मानिनेछ ।

💡By which provision exactly are the above companies associated?
Step 1: Shree Krishna and Araniko Ltd are associated person. Shree Krishna and Bhrikuti Ltd are associated person. – By the reason of “एक अर्को व्यक्तिको मनसायअनुसार काम गर्ने एक वा एकभन्दा बढी व्यक्ति वा त्यस्ता व्यक्तिहरूको समूह”.
Step 2: Araniko Ltd and Bhrikuti Ltd are associated person. – By the reason of “कुनै निकाय आफै वा आफूसँग सम्बन्धित अन्य व्यक्ति वा सहयोगी निकाय वा त्यस्ता सहयोगी निकायसँग सम्बन्धित अन्य कुनै व्यक्ति वा निकायसँग मिलेर कुनै निकायको आय, पूँजी वा मताधिकारको पचास प्रतिशत वा सोभन्दा बढी हिस्सा नियन्त्रण गर्ने वा सोबाट फाइदा प्राप्त गर्ने निकाय ।“

उदाहरण २.३

कुनै व्यक्तिले अन्य व्यक्तिहरूको संचालक समिति वा कार्यकारिणी समितिमा ५० प्रतिशत भन्दा वढी प्रतिनिधित्व गरेको अवस्था बेटा लिमिटेडको सञ्जालक समितिमा ७ जना सञ्चालक रहने व्यवस्था रहेको छ । उक्त लिमिटेडमा ४ जना सञ्चालकले अल्फा लिमिटेडको प्रतिनिधित्व गर्दछन् । यसै गरी लक्स लिमिटेडलाई व्यवस्थापन गर्ने कार्यकारिणी समितिमा ५ जना सदस्य रहने व्यवस्था रहेको छ । उक्त समितिमा ३ जना सदस्य अल्फा लिमिटेडले मनोनयन गर्दछ । माथिको रेखा चित्रअनुसार बेटा लिमिटेडको सञ्चालक समितिमा तथा लक्स लिमिटेडको कार्यकारिणी समितिमा अल्फा लिमिटेडको बहुमत रहकोले ती दुवै कम्पनी अल्फा लिमिटेडको सम्बद्ध निकाय हुन्छन् । यसै गरी दुवै कम्पनी व्यवस्थापन गर्ने समितिमा अल्फा लिमिटेडको बहुमत रहेकोले बेटा लिमिटेड तथा लक्स लिमिटेड समेत एक अर्काको सम्बद्ध व्यक्ति मानिन्छ ।

💡By which provision exactly are the above companies associated?
Step 1: Alfa Ltd and Beta Ltd are associated person. Alfa Ltd and Lux Ltd are associated person. – By the reason of “कुनै निकाय आफै वा आफूसँग सम्बन्धित अन्य व्यक्ति वा सहयोगी निकाय वा त्यस्ता सहयोगी निकायसँग सम्बन्धित अन्य कुनै व्यक्ति वा निकायसँग मिलेर कुनै निकायको आय, पूँजी वा मताधिकारको पचास प्रतिशत वा सोभन्दा बढी हिस्सा नियन्त्रण गर्ने वा सोबाट फाइदा प्राप्त गर्ने निकाय ।“
Step 2: Beta Ltd and Lux Ltd are associated person. – By the same reason as above.

Chapter 3: Transfer Pricing Determination and the Arm's Length Principle

उदाहरण ३.१

‘क’ देशको कम्पनी ‘ख’ ले ‘ग’ देशस्थित आफ्नो सम्बद्ध कम्पनी ‘घ’ लाई रू.१००।- मा कुनै वस्तु विक्री गर्दछ । उक्त वस्तुको बजार मूल्य रू. १५०।- रहेको छ । कम्पनी ‘घ’ ले यसमा केही मूल्य अभिवृद्धि गरी अर्को कुनै स्वतन्त्र पार्टीलाई रू.२००।- मा बिक्री गर्दछ । कम्पनी ‘ख’ लाई उक्त वस्तु असम्बद्ध पार्टीबाट खरिद गर्दा खरिद लागत रू.५०।- मात्र परेको छ । ‘क’ देश र ‘ग’ देशमा लाग्ने करको दर समान अर्थात ३०% छ ।
तालिका

विवरण	कम्पनी ‘ख’	कम्पनी ‘घ’	जम्मा
बिक्री मूल्य	१००/-	२००/-	३००/-
(-) खरिद लागत	५०/-	१००/-	१५०/-
खुद मुनाफा/करयोग्य आय	५०/-	१००/-	१५०/-
३०% दरले लाग्ने कर	१५/-	३०/-	४५/-
कर पछिको मुनाफा	३५/-	७०/-	१०५/-

प्रभावकारी करको दर = ४५/१५०×१०० = ३०%
कम्पनी ‘ख’ ले ‘घ’ लाई बिक्री गरेको वस्तुको बजार मूल्य = १५०।-

उदाहरण ३.२

माथि कै अवस्थामा ‘क’ देशको कम्पनी ‘ख’ ले ‘ङ’ देशमा अर्को सम्बद्ध कम्पनी ‘च’ खोल्दछ । उक्त देशमा करको दर जम्मा ५% मात्र छ । कम्पनी ‘ख’ ले कम्पनी ‘च’ लाई उक्त वस्तु विक्री गर्छ । कम्पनी ‘च’ ले कम्पनी ‘घ’ लाई बिक्री गर्दछ। उनीहरू बीचको कारोबार मूल्य देहायअनुसार छ ।
तालिका

विवरण	कम्पनी ख’	कम्पनी ‘च’	कम्पनी घ’	जम्मा
बिक्री	८०/-	१८०/-	२००/-	४६०/-
खरिद लागत (मूल्य)	५०/-	८०/-	१८०/-	३१०/-
खुद मुनाफा (करयोग्य आय)	३०/-	१००/-	२०/-	१५०/-
करको दर (%)	३०/-	५/-	३०/-
कर	९/-	५/-	६/-	२०/-
कर पछिको मुनाफा	२१/-	९५/-	१४/-	१३०/-

प्रभावकारी करको दर = २०/१५०x१०० = १३.३३%
कम्पनी ‘ख’ ले कम्पनी ‘च’ लाई विक्री गरेको वस्तुको बजार मूल्य = १५०
कम्पनी ‘च’ ले कम्पनी ‘घ’ लाई बिक्री गरेको वस्तुको बजार मूल्य = २००
घटी करको दर भएको देशमा सम्बद्ध कम्पनी खोलेर कम्पनी ‘ख’ ले आफ्नो विश्वव्यापी करको दायित्व ३०% ले लाग्नेमा १३.३३% ले लाग्ने गरी उल्लेखनीय रूपमा घटाएको छ । बहुराष्ट्रिय कम्पनीहरूले गर्ने माथि उल्लेखित कर व्यवहारलाई सामना गरी जुन कराधिकार क्षेत्रको जति कर हिस्सा हो सो हिस्सा सही कराधिकार क्षेत्रमा दाखिल गराउने उद्देश्यले हस्तान्तरण मूल्य संयन्त्रको विकास भएको हो ।

💡What does the above example explain?
This is a simple example. It draws a comparison with उदाहरण ३.१, and in उदाहरण ३.२, it examines an internal transfer pricing arrangement where the company sets prices not at market rates but in a way that reduces its overall tax liability, effectively lowering its tax rate from 30% to 13.33%.

Chapter 4: Comparability Analysis

उदाहरण ४.०

मानौ, कम्पनी A ले P१ तथा P२, २ वटा वस्तुको उत्पादन गर्छ । यसले आफ्नो उत्पादनहरू अर्को देशमा अवस्थित सम्बद्ध व्यक्ति B लाई विक्री गर्दछ । उक्त कम्पनीले मंहगो मूल्यमा कम्पनी B को स्वामित्वमा रहेको विशेष प्रकृतिको अमूर्त सम्पत्ति सोही कम्पनीले निर्धारण गरीदिएको प्राविधिक विशेष विवरण (Specification) अनुसार P१ वस्तु उत्पादन गर्दछ । P१ वस्तुको कारोबार सम्बन्धमा कम्पनी A ले कुनै उल्लेख्य थप योगदान नगरी सामान्य रूपले मात्र कार्य सम्पादन गर्दछ । यस्तो अवस्थामा P१ वस्तुको कारोबार सम्बन्धमा कम्पनी A परिक्षण गरीने पार्टी हुन्छ । मानौ, कम्पनी A ले P२ वस्तु उत्पादन गर्दा आफ्नै महँगो विशेष प्रकृतिको अमूर्त सम्पत्ति जस्तै पेटेन्ट तथा ट्रेडमार्क प्रयोग गर्दछ र यस कारोबारको सम्बन्धमा कम्पनी B ले वितरकको रूपमा मात्र कार्य गर्दछ । P२ वस्तुको कारोबारको सम्बन्धमा कम्पनी B ले कुनै महत्त्वपूर्ण थप योगदान नगरी सामान्य कार्यमात्र सम्पादन गर्दछ । यस्तो अवस्थामा P२ वस्तुको कारोबार सम्बन्धमा कम्पनी B परिक्षण गरीने पार्टी हुन्छ ।

💡What is a tested party?
The process of doing comparability analysis for the purpose of finding the Arm’s Length Price comprises of seven steps. They are:
1. Analysis of Economically Significant characteristics of Business and Transaction
2. Examining Comparability Factors of the Controlled Transaction
3. Selection of Tested Party
4. Selection of the Controlled Transaction
5. Identification and Selection of Comparable Transactions
6. Appropriate Adjustments to Comparable Transactions
7. Selection of the Appropriate Arm’s Length Pricing Method
In transfer pricing, the third step is selecting the “Tested Party.” This concept is crucial when two associated entities are involved in a transaction, like a parent company and its subsidiary. The goal is to apply the arm’s length principle – meaning that the transaction between these related entities should be priced as if it had taken place between two independent, unrelated parties.
To do this, one of the two entities needs to be selected as the tested party. The tested party is usually the entity with the simpler business structure or less complex transaction. This makes it easier to compare its financial outcomes (such as profits, margins, etc.) with those of other independent companies, which is key in determining whether the transfer price is arm’s length.
Let’s take an example:
Let’s say a U.S.-based parent company (Company A) sells products to its Nepali subsidiary (Company B). Both are related entities, so this is a controlled transaction. To assess if the pricing between them follows the arm’s length principle, one of these companies needs to be the tested party.
• Company A is a large multinational corporation with complex operations, research, and development activities.
• Company B is a simple distribution company that buys the products from Company A and sells them in Nepal.
In this case, Company B is more straightforward in its operations and has a business model similar to many independent distributors. Therefore, Company B would be selected as the tested party. Its profit margins, pricing, and financials would then be compared with independent distributors in Nepal or other external benchmarks (this is the uncontrolled transaction) to see if the pricing between Company A and Company B aligns with what would happen between unrelated entities.

💡What is “comparable uncontrolled transaction”?
A Comparable Uncontrolled Transaction refers to a transaction between two independent parties that can be used as a benchmark to determine if the pricing between related parties in a controlled transaction (company A and company B, in the case of above example) is in line with market conditions. There are two types of comparable uncontrolled transaction:
• Internal Comparable Uncontrolled Transactions: Comparable transactions between Company B (the tested party) and other unrelated suppliers (the other party to the transaction).
• External Comparable Uncontrolled Transaction: Comparable transactions between parties like Company B and their suppliers (the other party to the transaction).

💡Is the selection of “tested party” not necessary in some ALM Pricing Methods? And why?

Type	Method	Selection of Tested party required?	Why?
Traditional Transaction Method	Comparable Uncontrolled Price Method	No	The CUP method directly compares the price in a controlled transaction to the price in a comparable uncontrolled transaction, focusing on the price itself, so there’s no need to designate a tested party.
	Resale Price Method	Yes	The Resale Price Method examines the gross profit margin earned by a reseller in a controlled transaction. To apply this method, it is necessary to select the reseller as the tested party to calculate and compare their gross profit margin with uncontrolled transactions.
	Cost Plus Method	Yes	The Cost-Plus Method analyzes the markup on costs achieved in a controlled transaction by a supplier. The supplier is selected as the tested party to compare their markup with comparable uncontrolled transactions.
Transactional Profit Method	Transactional Net Margin Method	Yes	The Transactional Net Margin Method looks at the net profit indicator of one party in a controlled transaction, requiring the selection of a tested party, generally the less complex one.
Transactional Profit Method	Transactional Profit Split Method	No	The Transactional Profit Split Method analyzes the combined profits from a controlled transaction and splits them based on the relative contributions of each party. This method considers all parties and doesn’t necessitate selecting a single tested party.

Chapter 5: Methods of Arm's Length Price Determination

💡ALP Determination Formula for each method

Type	Method	Tested party required?	Mean / Median Approach for Comparable	Arm’s Length Price = Comparable Controlled Transaction Price + Transfer Pricing Adjustment =
Traditional Transaction Method	Comparable Uncontrolled Price Method	No	Transaction Price	Comparable Uncontrolled Transaction Price
	Resale Price Method	Yes	Gross Profit Margin	(Resale Price of Tested Party) × (1- Comparable Gross Profit Margin in Uncontrolled Transaction)
	Cost Plus Method	Yes	Gross Valued Add Ratio	(Gross Cost of Controlled Transaction of Tested Party) × (1+ Comparable Gross Valued Add Ratio in Uncontrolled Transaction)
Transactional Profit Method	Transactional Net Margin Method	Yes	Net Valued Add Ratio	(Net Cost of Controlled Transaction of Tested Party) × (1+ Comparable Net Valued Add Ratio in Uncontrolled Transaction)
Transactional Profit Method	Transactional Profit Split Method	No	Share of Transactional Profit	Cost of Controlled Transaction + Comparable Share of Transactional Profit

Comparable Uncontrolled Price Method

उदाहरण ५.१.१

मानौ एक नेपाली कम्पनी मनाकामना प्रा.लि. ले प्याकिङ मेसिन उक्त कम्पनीको सम्बद्ध कम्पनी अलास्का लि. सँग रू २० लाखमा (ढुवानी र बिमा सहित) खरिद गरेको रहेछ । अर्को नेपाली कम्पनी विन्धवासिनी प्रा.लि. ले त्यस्तै प्रकारको प्याकिङ मेसिन उस्को असम्बन्धित कम्पनी पेन्सिलभेनिया लि. बाट रू.१८ लाखमा (ढुवानी र बिमा बाहेक) खरिद गरेको रहेछ, जसको भाडा र वीमा लागत रु.१,००,००० खर्च भएको रहेछ । उक्त अवस्थामा कम्पनी मनाकामना प्रा.लि. को सामान्य बजार व्यवहार मूल्य निम्नानुसार गणना गर्नुपर्दछ ।
कम्पनी विन्धबासिनी प्रा.लि.ले नेपालमा कम्पनी पेन्सिलभेनिया लि.बाट उस्तै प्रकारको प्याकिङ मेसिन खरिद गरेको र दुवै स्वतन्त्र उद्यम भएकाले यस्तो अवस्थामा बाह्य तुलनात्मक अनियन्त्रित मूल्य (CUP) विधि प्रयोग गरी सामान्य बजार व्यवहार मूल्य गणना गर्नु उपयुक्त हुन्छ ।

विवरण	रकम (रू.)
कम्पनी विन्धबासिनी प्रा.लि.को लागि खरिद मूल्य	१८,००,०००
बिमा र भाडा	१,००,०००
सामान्य बजार कारोबार मूल्य	१,९००,०००
कम्पनी मनाकामना प्रा.लि.को लागि वास्तविक खरिद मूल्य	२०,००,०००
हस्तान्तरण मूल्य निर्धारण समायोजन (Transfer Pricing Adjustment) (अधिक खर्च अस्विकृत)	१००,०००

💡Okay, let’s go through the solution given in the example.
Uncontrolled Transaction Price + Comparability Adjustments in Uncontrolled Transaction Price = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment
[1,800,000] + [100,000] = [2,000,000] + [0] + [Transfer Pricing Adjustment]
Thus, Transfer Pricing Adjustment = – 100,000
Since this is a negative transfer price adjustment in an expense transaction of the assessed party (i.e. मनाकामना प्रा.लि.), transfer pricing adjustment is necessary.

उदाहरण ५.१.२

मानौ एरिजोना लि.ले कुनै सामाग्रिहरू बागेस्वरी लि. (एरिजोना लि.को सम्बद्ध व्यक्ति) लाई FOB (Free on Board) मा प्रति इकाई रु.३,००० मा बिक्री गर्दछ । त्यस्तै प्रकारले एरिजोना लि.ले उक्त सामान असम्बद्ध निकाय तलेजु लि. लाई CIF Value (लागत, बिमा र ढुवानी) मा प्रति इकाई रू.६,००० का दरले १०,००० इकाई बिक्री गर्दछ जहाँ तलेजु लि.ले बिमा र ढुवानी वापत रु.५०० प्रति इकाई तिर्दछ । तलेजु लि. ले ठूलो मात्रामा अर्डर राखेकोले प्रति इकाई रू.२०० छुट पाउँछ । उक्त विक्रीमा तलेजु लि. लाई ३ महिनाको क्रेडिट सुविधा समेत दिइएको छ भने बागेस्वरी लि. लाई नगद भुक्तानीमा मात्र विक्री गरीएको छ र केडिट लागत प्रति महिना १% छ । माथिको उदाहरणमा सामान्य बजार व्यवहार मूल्य CUP विधि प्रयोग गरी निम्नानुसार गणना गर्नुपर्दछ ।

विवरण	मूल्य(रू)
तलेजु लि. को खरिद मूल्य	रू. ६००० प्रति इकाई
(+) छुट	रू. २००
(-) बिमा र ढुवानी मूल्य	रू. ५००
(-) तीन महिना केडिट सुविधा (६०००x३%)	रू. १८०
सामान्य बजार व्यवहार मूल्य	रू.५५२० प्रति इकाई
हस्तान्तरण मुल्य निर्धारण समायोजन (TP Adjustment)	रू. २५२० प्रति इकाइ

💡Okay, let’s go through the solution given in the example.
Uncontrolled Transaction Price + Comparability Adjustments in Uncontrolled Transaction Price = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment
[6,000] + [- 500 – 200 – {(6,000 – 200) × 1% × 3}] = [3,000] + [0] + [Transfer Pricing Adjustment]
Thus, Transfer Pricing Adjustment = 2,126
Since this is a positive transfer price adjustment in an expense transaction of the assessed party (i.e. बागेस्वरी लि.), transfer pricing adjustment is not made.
Note: The solution in the guidelines has incorrect adjustments for discount and credit facility.

💡There is a catch. There is something to consider in the above example.
In the above example, we calculate a Transfer Pricing Adjustment of 2,126, which is positive. While this adjustment technically benefits Bageshwari Ltd. by increasing its cost base, it’s important to consider the broader goal of transfer pricing adjustments. The main objective of Nepal’s transfer pricing guidelines is to ensure that transactions between related parties occur at arm’s length, preventing tax base erosion by ensuring prices reflect what independent entities would agree upon in similar circumstances. However, in this particular case, the adjustment does not contribute to increasing Nepal’s tax base.

💡But does that negate the need to do transfer pricing adjustment in Nepal?
Kinda Yes. Tax authorities in any tax jurisdiction are primarily focused on ensuring that entities within their jurisdiction pay the correct tax based on arm’s length transactions. They typically care less about how the adjustment affects the other party in a different jurisdiction. Taking example from our nearest neighbor, Indian law also does not recognize transfer pricing adjustments that benefit the taxpayer by reducing their tax liabilities as per the Income Tax Act 1961. In cases where these adjustments lead to double taxation, countries can use Mutual Agreement Procedures (MAP) under tax treaties to resolve disputes and ensure profits are only taxed once. This non recognition rule has been illustrated in many examples within this guideline as well, including an example उदाहरण ५.२.२.

Resale Price Method

उदाहरण ५.२.१

मलेसियामा अवस्थित ‘क’ भन्ने कम्पनीको सहायक कम्पनी, नेपालमा वितरकको रूपमा ‘ख’ नामको करदाता रहेको छ । ‘ख’ ले ‘क’ बाट उत्पादित उच्च गुणस्तरको वस्तु वितरण गर्दछ । ‘क’ ले त्यस्तै प्रकारको कम गुणस्तरको वस्तु मलेसियामा रहेको स्वतन्त्र वितरकलाई विक्री गर्दछ । ‘ख’ ले ‘क’ बाट खरिद गरेका वस्तुको लागत प्रति एकाई रू.७६० रहेको छ । ‘ख’ ले उक्त वस्तु असम्बन्धित व्यक्तिलाई रू. ८०० मा पुनः विक्री गर्दछ । कार्यगत विश्लेषणबाट ‘ख’ र ‘ग’ ले समान क्रियाकलाप सञ्चालन गरेको देखिन्छ । फर्म ‘ग’ को कुल नाफा १०% रहेको अवस्था छ ।

यस उदाहरणमा नियन्त्रित र स्वतन्त्र बजार कारोबारलाई तुलना गर्दा वस्तुको गुणस्तरमा भिन्नता रहेको विषयलाई ख्याल गर्नु पर्दछ । तथापि, नाफालाई केन्द्रमा राखेर तुलना गर्दा हुन आउने फरक मूल्यको आधारमा तुलना गर्दा जस्तो यथार्थपरक देखिदैन । साथै, ‘ख’ र ‘ग’ ले समान व्यावसायिक क्रियाकलाप सञ्चालन गर्ने भएकोले (‘ग’ बजारको अर्को पुनः बिक्रीकर्ता रहेको) ‘ख’ ले ‘क’ बाट गरेको खरिदलाई आधारको रूपमा लिनु पर्ने हुन्छ ।
खरिद गरीएको वस्तुको स्वतन्त्र बजार व्यवहार मूल्य रू. ८००- (८००×१०%) = ७२०

💡Okay, let’s go through the solution given in the example.
(Resale Price of Tested Party) × (1- Comparable Gross Profit Margin in Uncontrolled Transaction) = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment
[800] × [1-10%] = [760] + [0] + [Transfer Pricing Adjustment]
Thus, Transfer Pricing Adjustment = – 40
Since this is a negative transfer price adjustment in an expense transaction of the assessed party (i.e. कम्पनी ‘ख’), transfer pricing adjustment is necessary.

उदाहरण ५.२.१

मानौ, नेपालको कम्पनी अरूण लि. स्टिल भाँडा निर्माण गर्दा प्रयोग हुने मेसिनको कारोबारमा संलग्न रहेको छ । उक्त कम्पनीले अमेरिकामा अवस्थित आफ्‌नो मुख्य कम्पनीबाट नेपालमा बिक्री गर्नको लागि आवश्यक मेसिन प्रति युनिट दुई लाखमा आयात गरी प्रति युनिट तीन लाख पचास हजारमा बिक्री गर्दछ । नेपालकै अर्को कम्पनी वरूण लि.यस्तै प्रकारको मेसिनहरूको कारोबारमा संलग्न छ । उक्त बरूण लि.ले आवश्यक मेसिन युके (UK) बाट प्रति युनिट रू १,८०,००० मा आयात गरी रू ३,००,००० प्रति युनिटमा बिक्री गर्ने गर्दछ । माथिको उदाहरणमा दुवै मेसिन तथा अन्य करारका दायित्वहरू (Contractual obligation) समान भएको मानि सामान्य बजार व्यवहार मूल्य निम्नानुसार गणना गरिन्छ-

विवरण	रकम (रू लाखमा)
बरूण लि.को बिक्री मूल्य	३.
(-) खरिद मूल्य	१.८
कुल मुनाफा (प्रति मेसिन)	१.२
कुल मुनाफा अनुपात	४०.००%
अरूण लि.को बिकी मूल्य	३.५
(-) कुल मुनाफा (४०%)	१.४
आर्म लेन्थ खरिद मूल्य	२.१
वास्तविक खरिद मूल्य	२.
हस्तान्तरण मूल्य समायोजन प्रति मेसिन	०*

💡Okay, let’s go through the solution given in the example.
(Resale Price of Tested Party) × (1- Comparable Gross Profit Margin in Uncontrolled Transaction) = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment
[350,000] × [1- {(300,000-180,000)/300,000}] = [200,000] + [0] + [Transfer Pricing Adjustment]
Thus, Transfer Pricing Adjustment = 10,000
Since this is a positive transfer price adjustment in an expense transaction of the assessed party (i.e. अरूण लि.), transfer pricing adjustment is not made.

Cost Plus Method

उदाहरण ५.३.०

सेवा प्रदान गर्ने नेपाली कम्पनी

मूल्य अभिवृद्धि= कारोबार रकम- लागत खर्च = रू. २००-१५०=५०
मूल्य अभिवृद्धि प्रतिशत-५०/१५०=३३.३३%

लागत खर्च = रू. ३००
हस्तान्तरण मूल्य = लागत खर्च x (१+ मूल्य अभिवृद्धि प्रतिशत) = रू. ३०० x (१+ ३३.३३%)
तसर्थ, हस्तान्तरण मूल्य =रू. ४००

💡Okay, let’s go through the solution given in the example.
(Gross Cost of Controlled Transaction of Tested Party) × (1+ Comparable Gross Valued Add Ratio in Uncontrolled Transaction) = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment
[300] × [1+{(200/150) -1}] = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment = Arm’s Length Price = 400

उदाहरण ५.३.१

जानकी नेपाल लि. (जर्जिया लि. को सहायक कम्पनी) ले अमेरिकामा अवस्थित मुख्य कम्पनी जर्जिया लि.लगायत अन्य कम्पनीहरूलाई कल सेन्टर सुविधा प्रदान गर्ने रहेछ । उक्त लि. ले आफ्नो मुख्य कम्पनी जर्जिया लि.लाई प्रति घण्टा अमेरिकी डलर ६० को दरले बीजक जारी गर्दछ ।
उक्त लि.ले टेक्सास लि.लाई त्यस्तै प्रकारको सेवा प्रदान गर्दछ र प्रति घण्टा अमेरिकी डलर ८० को दरले बीजक जारी गर्दछ । उक्त सेवा वापत पाउनु पर्ने भुक्तानी जर्जिया लि.ले तत्काल भुक्तान गर्दछ भने टेक्सास लि.ले ६० दिनको क्रेडिट सुविधा प्राप्त गर्दछ । जानकी नेपाल लि. लाई उक्त सेवा प्रदान गर्न प्रति घण्टा अमेरिकी डलर ३० प्रति व्यक्ति जम्मा लागत लाग्दछ जसमा अप्रत्यक्ष खर्च अमेरिकी डलर ६ समेत समावेश छ । उक्त कारोबार भएको समयमा क्रेडिट अवधिको वित्तीय लागत अमेरिकी डलर ६ प्रति महिनाका दरले लाग्ने रहेछ ।
जानकी नेपालले जर्जिया लि. लाई सेवा प्रदान गर्दा थप ३०% मानव लागत लाग्ने रहेछ । यस अवस्थामा आर्म लेन्थ मूल्य निम्नानुसार गणना गर्नुपर्दछ ।

विवरण	रकम (अमेरिकी डलरमा)
टेक्सास लि.को लागि प्रति घण्टा बीजक मूल्य	८०
लागत खर्च
कुल खर्च	३०
(-) अप्रत्यक्ष खर्च	६
प्रत्यक्ष खर्च	२४
(+) केडिट अवधिको वित्तीय लागत अमेरिकी डलर ६ प्रति महिनाका दरले	१२
समायोजन पछिको लागत खर्च	३६
मूल्य अभिवृद्धि (बीजक मूल्य-समायोजन पछिको लागत खर्च)	४४
मूल्य अभिवृद्धि अनुपात	१२२.२३%
जर्जिया लि.को लागि लागत खर्च
प्रत्यक्ष खर्च (३०% बढी) (२४+३०%)	३१.२
मूल्य अभिवृद्धि (१२२.२२%)	३८.१४
आर्म लेन्थ मूल्य	६९.३४
जर्जिया लि.को लागि वास्तविक मूल्य	६०
हस्तान्तरण मूल्य समायोजन *	९.३४

*तसर्थः जर्जिया लि. लाई जारी गरीएको वास्तविक बीजक मूल्य आर्म लेन्थ मूल्य भन्दा कम भएकोले हस्तान्तरण मूल्य समायोजन गर्नु पर्दछ ।

💡Okay, let’s go through the solution given in the example.
(Gross Cost of Controlled Transaction of Tested Party) × (1+ Comparable Gross Valued Add Ratio in Uncontrolled Transaction) = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment
[(30-6) × 130%] × [1+{80/(30-6+12)-1}] = [60] + [Transfer Pricing Adjustment]
Thus, Transfer Pricing Adjustment = 9.34
Since this is a positive transfer price adjustment in a revenue transaction of the assessed party (i.e. जानकी नेपाल लि.), transfer pricing adjustment is necessary.

उदाहरण ५.३.२

मानौ काष्ठमण्डप प्रा.लि. (न्यूयोर्क इन्कर्पोरेशनको सहायक कम्पनी) ले संयुक्त राज्य अमेरिकामा अवस्थित न्यूयोर्क इन्कर्पोरेशन (प्रमुख कार्यालय) लाई सफ्टवेयर विकास र डाटाबेस व्यवस्थापनसम्बन्धी सेवाहरू प्रदान गरेको रहेछ । उक्त सेवा प्रदान गर्न काष्ठमण्डप प्रा.लि. लाई अमेरिकी डलर १०००० लागत खर्च लागेको रहेछ । काष्ठमण्डप प्रा.लि.ले न्यूयोर्क इन्कर्पोरेशनलाई बीजक जारी गर्दा नेपालमा भएको लागत खर्चमा १५% मूल्य अभिवृद्धि गरी बीजक जारी गर्ने भनी एक आपसमा सहमति भएको रहेछ । यस्तै कारोबारमा संलग्न स्वतन्त्र व्यक्तिहरू बीच भने सेवा प्रदान गर्दा लागत खर्चमा ५०% मूल्य अभिवृद्धि गरी बीजक जारी गर्ने गरीदो रहेछ । लागत थप (Cost Plus Method) विधिको प्रयोग गरी देहायअनुसार सामान्य बजार व्यवहार मूल्य गणना गर्नु पर्दछ-

विवरण	रकम (अमेरिकी डलरमा)
काष्ठमण्डप प्रा.लि. को लागत खर्च	१०,०००
मूल्य अभिवृद्धि १५%	१,५००
आय	११,५००
सामान्य बजार व्यवहार मूल्य=लागत खर्च x (१+स्वतन्त्र व्यक्तिहरू बीचको मूल्य अभिवृद्धि प्रतिशत) =१०००० x (१+५०%)	१५,०००
हस्तान्तरण मूल्य समायोजन*	३,५००

तसर्थः काष्ठमण्डप प्रा.लि. (न्यूयोर्क इन्कर्पोरेशन को सहायक कम्पनी) ले न्यूयोर्क इन्कर्पोरेशन (प्रमुख कार्यालय) लाई जारी गरीएको वास्तविक बीजक मूल्य सामान्य बजार व्यवहार मूल्य भन्दा कम भएकोले मूल्य हस्तान्तरण समायोजन गर्नु पर्दछ ।

💡Okay, let’s go through the solution given in the example.
(Gross Cost of Controlled Transaction of Tested Party) × (1+ Comparable Gross Valued Add Ratio in Uncontrolled Transaction) = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment
[10,000] × [1+50%] = [10,000 × 115%] + [0] + Transfer Pricing Adjustment
Thus, Transfer Pricing Adjustment = 3,500
Since this is a positive transfer price adjustment in a revenue transaction of the assessed party (i.e. काष्ठमण्डप प्रा.लि.), transfer pricing adjustment is necessary.

Transactional Net Margin Method

उदाहरण ५.४.०

खुद मूल्य अभिवृद्धि = कारोबार रकम- (प्रत्यक्ष खर्च + सञ्चालन खर्च) = रू.५५०-(४५०+५०)=५०
खर्चअनुसार खुद मूल्य अभिवृद्धि प्रतिशत=५०/५००=१०%

प्रत्यक्ष खर्च = रू. ९००
सञ्चालन खर्च = रू. १००
हस्तान्तरण मूल्य = (प्रत्यक्ष खर्च + सञ्चालन खर्च) x (१+ खर्चअनुसार खुद मूल्य अभिवृद्धि प्रतिशत) = (रु. ९०० + रु. १००) x (१+१०%)
तसर्थ: हस्तान्तरण मूल्य = रू. ११००

उदाहरण ५.४.१

काष्ठमण्डप लि. (क्यालिफोर्निया इन्कर्पोरेशन को सहायक कम्पनी) ले संयुक्त राज्य अमेरिकामा अवस्थित आफ्नो मुख्य कम्पनी क्यालिफोर्निया इन्कर्पोरेशनलाई सूचना प्रविधिसम्बन्धी सेवा प्रदान गर्दछ । उक्त कम्पनीको खुद सञ्चालन मुनाफा मुख्य कम्पनीलाई प्रदान गरेको सेवा समेत समावेश गर्दा १५% हुन आउँदछ । यसै परिप्रेक्ष्यमा मान्यता प्राप्त दुईवटा डाटावेशमा खोजी गर्दा काष्ठमण्डप लि.को कारोबार स्थल नजिकै उस्तै प्रकृतिको सेवा प्रदान गर्ने पाँच वटा तुलनायोग्य स्वतन्त्र कम्पनीहरू भेटियो र उक्त कम्पनीहरूको औषत सञ्चालन मुनाफा १७% रहेछ । तुलनायोग्य स्वतन्त्र कम्पनीहरूले धेरै पहिले देखि नै यस्ता प्रकृतिको सेवा दिदै आएका रहेछन् । सोही कारण उनीहरूले प्रदान गर्ने सेवा बढी प्रभावकारी हुने दावी गरी अन्य यस्तै सेवा प्रदान गर्ने कम्पनीहरूको तुलनामा सामान्यतया ३% सम्म बढी मुनाफा लिने रहेछ ।
तुलनायोग्य स्वतन्त्र कम्पनीहरूको औषत खुद मुनाफालाई कारोबारको खुद मुनाफा बिधि (Transactional Net Margin Method) प्रयोग गरी देहायअनुसार समायोजन गर्दा आउने तुलनायोग्य स्वतन्त्र कम्पनीहरूको औषत खुद मुनाफा अनुपातसँग काष्ठमण्डप लि. को खुद मुनाफा तुलना गर्दा काष्ठमण्डप लि. को खुद मुनाफा अनुपात बढी भएकाले हस्तान्तरण मूल्य समायोजन आवश्यक देखिदैन ।

विवरण	खुद मुनाफा अनुपात
पाँच तुलनात्मक कम्पनीहरूको सञ्चालन मुनाफा	१७.००%
(-) सामान्य कम्पनीहरूले भन्दा बढी लिने मुनाफा समायोजन	३.००%
तुलनाको लागि खुद मुनाफा	१४.००%
काष्ठमण्डप लि.को खुद मुनाफा	१५.००%
हस्तान्तरण मूल्य समायोजन	०*

* काष्ठमण्डप लि.को खुद मुनाफा पाँच वटा तुलनायोग्य स्वतन्त्र कम्पनीहरूको समायोजित औषत खुद मुनाफा अनुपात भन्दा बढी भएकोले हस्तान्तरण मूल्य समायोजन गर्न आवश्यक पर्दैन ।

💡Okay, let’s go through the solution given in the example.
(Net Cost of Controlled Transaction of Tested Party) × (1+ Comparable Net Valued Add Ratio in Uncontrolled Transaction) = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment
[1] × [1+ {17%-3%}] = [1×{1+15%}] + [0] + [Transfer Pricing Adjustment]
Thus, Transfer Pricing Adjustment = -1
Since this is a negative transfer price adjustment in a revenue transaction of the assessed party (i.e. काष्ठमण्डप लि.), transfer pricing adjustment is not made.

Transactional Profit Split Method

उदाहरण ५.५.१

संयुक्त राज्य अमेरिकामा अवस्थित फ्लोरिडा इनकर्पोरेशनले आफ्नो एक ग्राहकबाट लेखा प्रणालीलाई व्यवस्थित र सरल बनाउन विशिष्ट प्रकृतिको लेखाको सफ्टवेयर निर्माण गर्ने भनी अमेरिकी डलर २०० मिलियनमा सम्झौता गरेको रहेछ । उक्त सफ्टवेयर फ्लोरिडा इनक्पोरेशनले अमेरिकामा आफै एक्लैले निर्माण गर्दा बढी लागत लाग्ने भएकाले आफ्नो सहायक कम्पनीहरूको सहयोगमा निर्माण गर्ने निर्णय गरेको रहेछ । फ्लोरिडा इनकर्पोरेशनले उक्त सफ्टेवयर निर्माणको कार्य सम्पादन गर्न ५०% कार्य आफै गर्ने बाँकी कार्य इन्डिया र नेपालमा रहेका आफ्ना सहायक कम्पनीलाई गराउने गरी उनीहरूले क्रमशः ३०% र २०%
कार्य गर्ने गरी निजहरूसँग सम्झौता गरेको रहेछ । नेपालमा रहेको सहायक कम्पनीले सम्झौताअनुसारको २०% कार्य गर्न नेपालमा अमेरिकी डलर १० मिलियन खर्च गरी आफ्नो मुख्य कम्पनी फ्लोरिडा इनकर्पोरेशनलाई उक्त कार्य सम्पादन गरे बापत अमेरिकी डलर १५ मिलियनको बीजक जारी गरेको रहेछ ।
फ्लोरिडा इनकर्पोरेशनलाई उक्त विशिष्ट प्रकृतिको लेखाको सफ्टवेयर निर्माण र विकास गरी ग्राहकलाई बिक्रि गर्दा सम्पूर्ण खर्च कट्टा गर्दा कुल अमेरिकी डलर ६० मिलियन मुनाफा आर्जन हुने रहेछ । कारोबारको लाभ विभाजन विधि (Transactional Profit Split Method) प्रयोग गरी देहायअनुसार बजार मूल्य (Arm’s length Price) गणना गर्दा नेपालको सहायक कम्पनीले आफ्नो मुख्य कम्पनीलाई जारी गरेको बीजक मूल्य बजार मूल्य (Arm’s length Price) भन्दा कम भएकाले हस्तान्तरण मूल्य समायोजन आवश्यक देखिन्छ ।
उपलब्ध विवरण आनुसार बजार मूल्य (Arm’s length Price) को गणना निम्नानुसार गर्नु पर्दछः-

विवरण	रकम (अमेरिकी डलर मिलियनमा)
फ्लोरिडा इनकर्पोरेशन (मुख्य कम्पनी) को कुल मुनाफा	६०
नेपालको सहायक कम्पनीको योगदान	२०.००%
नेपालको सहायक कम्पनीको स्वतन्त्र बजार व्यवहार मुनाफा	१२
नेपालको सहायक कम्पनीको खर्च	१०
स्वतन्त्र बजार व्यवहार मूल्य (Arm’s length Price)	२२
वास्तविक रूपमा जारी गरेको बीजक मूल्य	१५
हस्तान्तरण मूल्य समायोजन*	७*

* नेपालको सहायक कम्पनीले आफ्नो मुख्य कम्पनीलाई जारी गरेको बीजक मूल्य बजार मूल्य (Arm’s length Price) भन्दा कम भएकाले हस्तान्तरण मूल्य समायोजन (Transfer Pricing Adjustment) आवश्यक देखिन्छ ।

💡Okay, let’s go through the solution given in the example.
Cost of Controlled Transaction + Comparable Share of Transactional Profit = Controlled Transaction Price + Comparability Adjustments in Controlled Transaction Price + Transfer Pricing Adjustment
[10] + [12] = [15] + [0] + [Transfer Pricing Adjustment]
Thus, Transfer Pricing Adjustment = 7
Since this is a positive transfer price adjustment in a revenue transaction of the assessed party (i.e. नेपालमा रहेको सहायक कम्पनी), transfer pricing adjustment is necessary.

Aggregation of Results

The aggregation of data in determining the Arm’s Length Price (ALP) involves combining the results from various transfer pricing methods. The type of index to be aggregated depends on the method used. Depending on the type of the method used to determine the ALP, key indicators such as Transaction Price, Gross Profit Margin, Gross Value-Added Ratio, Net Value-Added Ratio, or Share of Transactional Profit (depending on the method) are aggregated using either the Median or Mean approach. For instance, under the Comparable Uncontrolled Price (CUP) Method, the picoting index is Transaction Prices, so we aggregate the transaction prices from comparable transactions. Similarly, in the Transactional Net Margin Method (TNMM), we would aggregate its pivoting index i.e. Net Value-Added Ratios from the comparable transactions.

💡Which aggregation method are referred to in the Transfer Pricing Guideline, 2081?
Paragraph 5.6 of the Transfer Pricing Guideline, 2081 outlines the rules for aggregating the key parameters based on the specific method used to determine the Arm’s Length Price (ALP).
• Median Approach: This method applies when there are seven or more comparable transactions. The range is considered within the 35th to 65th percentiles. If the tested party’s financial indicator falls within this range, or within 5% above or below the minimum or maximum financial indicators, it is deemed to be at arm’s length. If the indicator is outside this range, the transaction is not considered to be at arm’s length, and adjustments must be made. If not within the range, the financial difference from the median is calculated, and the adjustment is made for tax determination.
• Mean Approach: For six or fewer comparable transactions, the mean approach is used. The average of the financial indicators is computed, and if the tested party’s financial indicator is within 5% above or below this average, it is considered to be at arm’s length. If the difference exceeds this, adjustments are required to align the transaction with the average and determine taxes accordingly.

💡Why is Median Aggregation Approach used for larger observation size and Mean Aggregation Approach used for smaller observation size?
The median approach is preferred for larger sample sizes (seven or more comparable transactions) because the median is less sensitive to extreme values or outliers, which can skew the results. In larger datasets, outliers are more likely to exist, so using the median provides a more accurate and stable measure of central tendency, ensuring that unusual transactions don’t distort the analysis. On the other hand, the mean approach is used for smaller sample sizes (six or fewer comparable) because, with fewer data points, there is less chance of extreme values significantly affecting the outcome. The mean is a straightforward calculation of the average, which works well for smaller sets of data, where outliers are less of a concern.

उदाहरण ५.६.१ (Median Approach)

मानौ, अपि लि. सफ्टवेयर विकास गर्ने व्यवसायमा संलग्न छ । अपि लि. को मुख्य कार्यालय, एडोब इनकर्पोरेशन अमेरिकामा अवस्थित छ । अपि लि. ले आफ्नो मुख्य कार्यालयलाई सफ्टवेयरसम्बन्धी सेवा प्रदान गर्दछ । आर्थिक विश्लेषणमा यो वर्ष जम्मा ८ बटा तुलनायोग्य कम्पनीलाई समावेश गरीएको छ ।
उल्लेखित आठ कम्पनीको तुलनात्मक सञ्चालन मुनाफा निम्नानुसार छ –

क. सं.	सञ्चालन मुनाफा
कम्पनी १	१२.४४%
कम्पनी २	६.००%
कम्पनी ३	९.८६%
कम्पनी ४	१०.८७%
कम्पनी ५	३६.१३%
कम्पनी ६	७.७१%
कम्पनी ७	२१.३०%
कम्पनी ८	५.३२%

पहिलो कदम

कम्पनी	८	२	६	३	४	१	७	५
सञ्चालन मुनाफा	५.३२	६	७.७१	९.८६	१०.८७	१२.४४	२१.३	३६.१३

दोस्रो कदम
तल्लो दायरा = डाटासेटमा डाटा पोइन्टको कुल संख्या × (३५/१००)
माथिल्लो दायरा = डाटासेटमा डाटा पोइन्टको कुल संख्या × (६५/१००)
३५ पर्सेन्टाईल को डाटा पोइन्ट = ८×०.३५= २.८
तेस्रो (३) स्थानमा राखिएको सञ्चालन मुनाफा = ७.७१%
६५ पर्सेन्टाईल को डाटा पोइन्ट = ८×०.६५=५.२
छैठौ (६) स्थानमा राखिएको सञ्चालन मुनाफा = १२.४४%
अव यहाँ:
आर्म लेन्थ दायरा ७.७१% देखी १२.४४% हुनेछ ।

तेस्रो कदम
(क) यदि अन्र्तराष्ट्रिय कारोबारको मूल्य ७.७१% वा सो भन्दा बढी र १२.४४% वा सो भन्दा कम भएमा, त्यसलाई दायरा भित्र रहेको मानिनेछ ।
(ख) यद्यपि, यदि अन्तराष्ट्रिय मूल्य आर्म लेन्थ दायराबाट सोको ५% ले बाहिर गएको खण्डमा, आर्म लेन्थ मूल्य हिसाब गर्न डाटासेटको मध्यिका लाई लिईन्छ ।
केश १: मानौ उक्त कम्पनीको उक्त कारोबारमा सञ्चालन मुनाफा ८ प्रतिशत रहेमा सो कारोबार सामान्य बजार मूल्यअनुसार भएको मानिनेछ ।
केश २: मानौ उक्त कम्पनीको उक्त कारोबारमा सञ्चालन मुनाफा ७.५ प्रतिशत रहेमा सो मुनाफा तल्लो दायराभन्दा ५ प्रतिशत कमको क्षेत्र भित्र रहेकोले सो कारोबार सामान्य बजार मूल्यअनुसार भएको मानिनेछ ।
केश ३: मानौ उक्त कम्पनीको उक्त कारोबारमा सञ्चालन मुनाफा ४ प्रतिशत रहेमा सो मुनाफा तल्लो दायराभन्दा ५ प्रतिशत कमको क्षेत्र भित्र नपर्ने भएकोले निम्न बमोजिम समायोजन मूल्य गणना गर्नु पर्दछ-
डाटा सेटको मेडियन = (८+१)/२= ४.५,
त्यसैले, मध्यक मूल्य = (९.८६% + १०.८७)/२ = १०.३७%
त्यसैले, आर्म लेन्थ मूल्य भनेको १०.३७% र समायोजन मूल्य निम्नानुसार हुनु पर्दछ ।
१०.३७% – ४ = ६.३७%

💡Key observations from the above example.
Note 1: In the above example, the method used is Resale Price Method
Note 2: Since the method used is Resale Price Method, the aggregation of the multiple data is made for the pivoting index of the Resale Price Method which is Gross Profit Margin

💡Steps for Median Aggregation Method
Step 1: Arrange the data points in ascending order
Step 2: Find the Pseudo Percentiles for 35% and 65% data points (Note that the directive doesn’t compute the true percentiles but rather Pseudo Percentiles are used. Pseudo Percentiles are calculated simply by find the upper range data from the straightforward multiplication of the number of observations by the k-th percentile)
• Lower Limit = ROUNDUP (Number of Observation × 35%, 0)th item of the Data = 3rd Item of the data = 7.71%
• Upper Limit = ROUNDUP (Number of Observation × 65%, 0)th item of the Data = 6th Item of the data = 12.44%
Step 3: Calculate the lower and upper bounds of the data within 5% deviation
• Lower Bound = 7.71% × (1 – 5%) = 7.32%
• Upper Bound = 12.43% × (1 + 5%) = 13.05%
Step 4: If the tested party’s index falls within the Lower and Upper Bound range, no transfer pricing adjustment is required. However, if the index doesn’t fall within this range, an adjustment is necessary to potentially increase the tax base for the jurisdiction in Nepal. In this particular example, since the indices are gross profit margin, if the actual gross profit margin of the assessed party is higher than the upper bound then there would be no adjustment necessary in the transfer price determination.

उदाहरण ५.६.२ (Mean Approach)

मानौ, अल्फा लि. सफ्टवेयर विकास गर्ने व्यबसायमा संलग्न छ । अल्फा लि. को मुख्य कार्यालय, एडोब इनकर्पोरेशन अमेरिकामा अवस्थित छ । अल्फा लि. ले आफ्नो मुख्य कार्यालयलाई सफ्टवेयरसम्बन्धी सेवा प्रदान गर्दछ । अल्फा लि.ले जस्तै कारोबार गर्ने यो वर्ष जम्मा ५ वटा तुलनात्मक कम्पनीहरूको सञ्चालन मुनाफाको तथ्याङ्क उपलब्ध रहेछ । उक्त कम्पनीहरूको तुलनात्मक सञ्चालन मुनाफा निम्नानुसार छ ।

क. सं.	सञ्चालन मुनाफा
कम्पनी १	१२.४४%
कम्पनी २	६.००%
कम्पनी ३	९.८६%
कम्पनी ४	१०.८७%
कम्पनी ५	३६.१३%

पहिलो कदम
पाँच कम्पनीको औषत सञ्चालन मुनाफा = (१२.४४%+६.००%+९.८६%+१०८७%+३६.१३%) / ५ = १५.०६%
दोस्रो कदम
केश १: यदि अल्फा लि.को सञ्चालन मुनाफा (१५.०६९५% =१४.३%) वा सो भन्दा बढी भएमा, त्यसलाई दायरा भित्र रहेको मानिनेछ ।
केश २: मानौ, अल्फा लि. को सञ्चालन मुनाफा १०% मात्र भएको खण्डमा, सामान्य बजार व्यवहार (आर्म लेन्थ) मूल्य सँगको फरक = (१५.०६%-१०%) = ५.०६%
त्यसैले, अल्फा लि.को सञ्चालन मुनाफा आर्म लेन्थ मूल्य भन्दा कम देखिएकाले सञ्चालन मुनाफामा ५.०६% समायोजन गर्नुपर्ने देखिन्छ ।

💡Steps for Median Aggregation Method
Step 1: Find the average of the observations
Step 2: If the index of the tested party is equal to the average computed in Step 1 there is no adjustment necessary for transfer pricing. However, if the index is not equal to the average calculated in Step 1, an adjustment is necessary to potentially increase the tax base for the jurisdiction in Nepal. In this particular example, since the indices are gross profit margin, if the actual gross profit margin of the assessed party is higher than the upper bound then there would be no adjustment necessary in the transfer price determination.

Chapter 6: Transfer Pricing Documentation

Annexure 1: Transfer Pricing Documentation Requirement (Link: करदाताले हस्तान्तरण मुल्य निर्धारणसम्बन्धी राख्नु पर्ने कागजातहरूको सूची)
Annexure 2: Transfer Pricing Certification Report from Auditor (लेखापरीक्षकले प्रमाणित गरी आय विवरणसाथ पेश गर्नपर्ने विवरण)
A component of the Annexure 1 is the Transfer Pricing Study Report (Link here for the Draft Template)

Chapter 7: Assessment and Administrative Review

While Nepal’s Transfer Pricing Guidelines do not explicitly define “Mutual Agreement Procedures” (MAP), they do address the resolution of transfer pricing disputes through administrative reviews and appeals within the country’s domestic legal framework. In the context of international taxation, MAP serves as a mechanism established under tax treaties to resolve cross-border tax disputes, including those arising from transfer pricing adjustments. This process enables taxpayers to work collaboratively with tax authorities in the relevant treaty partner countries to find a mutually acceptable resolution.

The absence of a specific MAP reference in “Transfer Pricing Guideline 2081” implies that Nepal’s domestic dispute resolution mechanisms may serve as the primary means for addressing transfer pricing issues. The guideline seems primarily focused on outlining the substantive rules and documentation requirements for transfer pricing compliance. In the absence of detailed MAP procedures within the guidelines, taxpayers can refer to the Mutual Agreement Procedure articles in the Double Tax Avoidance Agreements (DTAA) that Nepal has signed with various countries or the provisions outlined in Section 73 of the Income Tax Act, 2058, concerning international agreements.

According to Para 7.1 of the guidelines, the Department of Internal Revenue, Nepal’s tax authority, has the jurisdiction to audit taxpayers and make necessary adjustments to transfer pricing when it finds that the taxpayer’s pricing does not comply with the arm’s length principle, as stipulated in Section 101 of the Income Tax Act, 2058. If taxpayers are dissatisfied with a transfer pricing adjustment, they may file an administrative review request with the department in accordance with Section 115 of the Income Tax Act, 2068. Should the outcome of this administrative review be unsatisfactory, taxpayers have the right to appeal to the Revenue Tribunal under Section 116 of the Income Tax Act and the Revenue Tribunal Act of 2031.

Taxpayers who fail to maintain the required documents as mandated by the Act or do not submit their returns will incur a penalty as specified under Section 117 of the Act. Additionally, taxpayers making installment payments who do not submit their due amounts on time will be subject to interest charges according to Section 118 of the Act. Furthermore, if taxes due under this Act are not paid on time, interest will accrue under Section 119. In cases where a taxpayer submits a tax return that indicates an underreporting of tax, a penalty will also be imposed in accordance with Section 120. These fines and penalties are consistent with the requirements for similar non-compliance issues outlined in the Income Tax Act.

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Transfer Pricing in Nepal: Examples and FAQs

Chapter 1: Introduction

Chapter 2: Definitions

उदाहरण २.०

उदाहरण २.१

उदाहरण २.२

उदाहरण २.३

Chapter 3: Transfer Pricing Determination and the Arm's Length Principle

उदाहरण ३.१

उदाहरण ३.२

Chapter 4: Comparability Analysis

उदाहरण ४.०

Chapter 5: Methods of Arm's Length Price Determination

Comparable Uncontrolled Price Method

उदाहरण ५.१.१

उदाहरण ५.१.२

Resale Price Method

उदाहरण ५.२.१

उदाहरण ५.२.१

Cost Plus Method

उदाहरण ५.३.०

उदाहरण ५.३.१

उदाहरण ५.३.२

Transactional Net Margin Method

उदाहरण ५.४.०

उदाहरण ५.४.१

Transactional Profit Split Method

उदाहरण ५.५.१

Aggregation of Results

उदाहरण ५.६.१ (Median Approach)

उदाहरण ५.६.२ (Mean Approach)

Chapter 6: Transfer Pricing Documentation

Chapter 7: Assessment and Administrative Review