Transfer pricing (‘TP’) rules and their provisions are given in the tax laws of Mongolia, which stipulates that any transaction entered into between the related parties must be made at arm’s length. Failing this, the tax authorities are empowered to readjust the price of the transaction on the basis of fair market value.
The corporate tax law provides that ‘related parties’ are person/s having the right to participate, directly or indirectly, in the management, control and capital of an enterprise, or has the right to receive dividends or distribution in the capital of the enterprise by more than 20%.
However, the general tax laws of Mongolia provide a more broader definition of related parties as any person who participates, directly or indirectly, in the management, control or property rights of another foreign or resident entity.
See Note on proposed tax reform at the beginning of this chapter for potential impact on definition of related parties.
Following TP methods are applicable to the transactions between related parties:
- Comparable uncontrolled price (CUP) method
- Resale price method
- Cost plus method
- Profit split method
The best method rule applies for determination of arm’s length price for domestic and cross-border transactions. However, CUP method is generally preferred over other methods.
There is no specific requirement concerning comparable. However, comparable / data / information of Asia-Pacific region is preferable depending on the availability of the data.