Advance Pricing Agreement guidance may apply to an outside year where FAR similarity supports use of the agreed transfer pricing method.

In a transfer pricing dispute, an Advance Pricing Agreement may guide the determination for a year outside its direct coverage if the functional, asset and risk profile remains the same. The Tribunal noted that the agreement addressed the covered international transactions and the most appropriate method, and that consistent decisions require comparison of the disputed year's FAR profile with the agreement years before applying that methodology. The assessee was directed to produce the relevant compliance documents, and the Assessing Officer/TPO was directed to examine FAR similarity and apply the agreed method if the profiles match.

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Issues: Whether, in a transfer pricing dispute, the methodology and comparables framework adopted in an Advance Pricing Agreement could be applied to a year not expressly covered by that agreement when the functional, asset and risk profile remained the same.

Analysis: The year under appeal was outside the direct coverage period of the Advance Pricing Agreement, but the agreement expressly dealt with the covered transactions and the most appropriate transfer pricing method for the relevant international transactions. The Tribunal noted the consistent line of decisions holding that, where the FAR profile of the disputed year is the same as the FAR profile accepted in the agreement years, the agreement should guide the determination for the year under dispute. The assessee was therefore required to produce the necessary compliance documents and the Assessing Officer/TPO was required to examine the matter by comparing the FAR of the disputed year with the FAR under the agreement and to apply the agreed methodology.

Conclusion: The transfer pricing issue was restored for reconsideration in the light of the Advance Pricing Agreement, with directions to examine the FAR similarity and adopt the agreed method if applicable.

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