When a co. enters into a cross-border transaction ('International transaction') with its non-resident related party ('Foreign Associated Enterprise') it needs to comply with arm's length standard. In simple words, any transaction entered into with foreign related party should be done at arm's length price (ALP). ALP means a price that an independent party would be willing to pay for a similar product or service. In others words, price that would have been charged had the parties to the transaction been unrelated.
ALP is computed in accordance with any of the six methods prescribed under the Act that suits the nature of the international transaction keeping in mind the other factors.
The computed ALP and the method adopted for the international transaction needs to be reported in Form 3CEB (Transfer Pricing Report) by the end of 30th November of the assessment year.
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