Tolerable limit for determination of Arm Length Price with respect to international transactions and specified domestic transaction has been notified separately for “wholesale trading” and “cases other than wholesale trading” at the rate of 1% and 3% respectively.
The “arm’s length principle” of transfer pricing states that the amount charged between related parties for a given product must be the same as if the parties were not related. An arm length price for a transaction is therefore what the price of that transaction would be on the open uncontrollable market. For commodities, determining the arm’s-length price can sometimes be as simple a matter as looking up comparable pricing from non-related party transactions, but when dealing with proprietary goods and services or intangibles, arriving at an arm’s length price can be a much more complicated matter. Continue reading