From a tax point of view, the definition of related party transactions is more specific to the verification of arm’s-length pricing by associated persons. Its application is limited to the exchange of goods and services, royalties and other commercial and financial transactions.

There are five methods to determine the arm’s-length price:

• Comparable uncontrolled price method;
• Resale price method;
• Cost plus method;
• Transactional net margin method;
• Profit Split method.

The tax payer has the right to choose one of the methods above provided that adequate documents support the application of that method. Also, it is possible to get advance approval from the tax Authority on the method the tax payer will apply to determine the arm’s-length price.

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