Mr. Bishnu P. Nepal, IRD, Nepal

Challenges Faced in Implementing
Transfer Pricing
Presentation
B.P. Nepal
Inland Revenue Department
Nepal

Landlocked Himalayan Country
Situated between two economic power
India and China
Population around 26 Million
Youngest Republic

Adapted economic liberalization policy
Inland Revenue Department Administer
Excise,
VAT
Income Tax
Present income tax Act implemented in 2002
Investment friendly provisions in all tax laws

Functional organization
Completely officer oriented
Department with one LTO, 23 IROS, 26 TSOS
More than one thousand staffs

Transfer Pricing (Sec 33)
In any arrangement between persons who are associates, the
department may, by notice in writing, distribute, apportion, or
allocate amounts to be included or deducted in calculating
income between the persons as is necessary to reflect the
taxable income or tax payable that would have arisen for them
if the arrangement had been conduction at arm’s length.

Transfer Pricing (Sec 33)
In making any adjustment under subsection the dept. may
Re characterize the source and type of any income, loss, amount,
or payment; or
Allocate costs, including head office expenses, incurred by one
person in conduction a business that benefit an associate or
associates in conducting a business to the associates based on
the comparative uncovers of the businesses.

Associated persons
Associated persons means two or more persons or group
of such persons where one may reasonably be expected to
act in accordance with the intentions of the other
Associated persons may act on as
permanent Establishment and
Subsidiary

Provision on tax treaties
Contraction States may conduct the transfer pricing
audit .
State in which profit was shifted has to recalculate the
taxable income

Increased FDI
Increased cross broader transaction
Possibility of transfer pricing to shift profits

Completion of TP guideline draft
Discussion with stakeholder
Working on necessary changes to laws

Insufficient numbers of qualified
Officers
Tax auditors
Lack of knowledge within the private sector
Insufficient legal provision
No provision of advance price agreement

Limited tax treaties
Limited number of company register
on the stock exchange
Lack of available sufficient data and
information

TP guideline implementation
Capacity buildings of the officials
Establishment of data bank
Establishment of separate TP audit unit
Raising awareness of the stakeholders