Tax Appellate Tribunal makes transfer pricing laws more business friendly

The recent Income Tax Appellate Tribunal decision in the Mentor Graphics case considers for the first time the impact of Transfer Pricing Regulations on the choice of appropriate comparables for benchmarking or comparing the profits of Indian taxpayers. In its decision, the Tribunal summarizes the steps to be followed by the tax authorities and taxpayers in determining the arm's length price, the methodology for applying the transactional net margin method and the power of Transfer Pricing Officers in determining arm's length prices. The case also seeks to streamline Indian transfer pricing rules and OECD principles.