ARM’S LENGTH PRICE

(Section 92 to 92F)

 When two or more companies are affiliated

by a connection through a parent company,
and during their transaction internationally,
any income arising out of it, is often referred as
an arm’s length transaction.

 The price per unit that is computed for the

items brought or sold is referred to as an arm’s
length price.
 ARM’S LENGTH PRICE
(Section 92 to 92F)

Conditions for applicability of arm’s length price:

1. Two or more enterprise.

2.Enterprises should be regarded as associate

enterprise.

3.International transactions should be carried out

by the associated enterprises.
 ARM’S LENGTH PRICE
(Section 92 to 92F)
PARENT COMPANY
HINDUSTAN LEVER LTD.

TRANSACTIO
HINDUSTAN N
HINDUSTAN
LEVER UK LEVER
TRANSACTIO LTD. INDIA LTD.
N

SUBSIDARY COMPANIES
 ARM’S LENGTH PRICE
(Section 92 to 92F)

METHODS OF COMPUTATION

 Comparable Uncontrolled Price Method

 Resale Price Method
 Cost Plus Method
 Profit Split Method
 Transactional Net Margin Method
 ARM’S LENGTH PRICE
(Section 92 to 92F)

1.Comparable Uncontrolled Price Method:

 Comparison of price charged in a controlled situation
with the price of that in a uncontrolled situations.

2. Resale Price Method:

 Here the product purchased from associated parties are
sold to independent parties.

3. Cost Plus Method:

 Here some semi finished goods are sold between related
parties.
 ARM’S LENGTH PRICE
(Section 92 to 92F)

4.Profit Split Method:

 it is applicable where transaction involve transfer of
unique ,intangible or multiple interrelated transaction.

5.Transactional Net Margin Method:

 it requires comparison between net margins derived
from the operation of control parties.
ARM’S LENGTH PRICE
(Section 92 to 92F)
APPROPRIATE METHOD:

Experts say that comparative uncontrolled

price method, Resale Price method, cost plus
method is considered to be more appropriate
than profit split method and transactional
net Margin Method
 ARM’S LENGTH PRICE
(Section 92 to 92F)

HENCE ARM’S LENGTH PRICE IS USED FOR

COMPUTING
•FAIR AND
•EQUITABLE PROFIT.

WHEN THE APPROPRIATE INCOME IS COMPUTED

THEN WE CAN COMPUTE THE CORRECT TAX.
ARM’S LENGTH PRICE
(Section 92 to 92F)

THANK YOU

MATHAI JOYSON K.