Transfer pricing regulations are adopted from traditional transfer pricing methods described in the OECD Model Transfer Pricing Guideline. Transfer pricing rules apply when the transaction between related parties (both resident and non-resident) are not defined in accordance with arm’s-length pricing. If profits arise from disguised profit distribution through transfer pricing, then the profit is subject to both corporate tax and dividend tax.
Different methods are defined in corporate tax law in line with the methods described in the OECD’s transfer pricing guideline, such as comparable uncontrolled price, cost plus and resale price methods. Taxpayers are required to choose the most appropriate method to calculate transfer pricing based on arm’s-length price. Adequate documentation to demonstrate the chosen transfer pricing method must be provided to the tax office along with the annual corporate tax return.