background image
13.4.1. Main Rules

There are no specific transfer pricing rules in Nepal. However, the tax laws provide that transactions between  related parties are required to be at arm's length and the Inland Revenue Department ('IRD') is empowered to make adjustments in respect of arrangements between associated persons as necessary in order to reflect the taxable income or tax payable that would have arisen if the arrangement had been conducted at arm's length.

Definition of Related Parties

The tax law defines an 'Associated Person' to mean 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, and includes:

  • an individual and a relative of the individual or an individual and a partner of the individual;
  • a foreign permanent establishment ('PE') and its owner; and
  • an entity and a person who, either alone or together with an associate or associates controls or may benefit from 50% or more of the rights to income, capital, or voting power of the entity, as the case requires, either directly or through one or more interposed entities; or an associate of such person, provided that, the term does not include the following persons:
    • employee and
    • persons prescribed by the department as not being associate persons

Applicable TP Methods

The following TP methods are applicable to the transactions between related parties:

  • Comparable uncontrolled price (CUP) method
  • Resale price method
  • Cost plus method
  • TNMM
  • Profit split method
  • Any other method