DISPUTES on the transaction price of the assesse and usually higher arms length price determined by the Transfer Pricing Officer are closer to a rational resolution under the Finance Bill 2011.

Under the current provisions, section 92C provides that where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean.

The Finance Bill 2011 proposes to do away with the allowable standard five per cent price variation in the transaction price of the assessee and the mean arms length price determined by the transfer pricing officer. Instead, the central government would specify the variation in terms of percentage.

This proposal is expected to take effect from April 2012, when the Direct Tax Code is scheduled to kick in.

The central government is probably expected to base the allowable variation on industry type or business activity or even the nature of the international transaction.