Q. Company providing credit period 60 days one company and 150 to another company. Company follow cost plus mark-up method for computation of arm length price. Company charge 15.5% mark up on cost. Can it be same for both customers if GAP in credit period is 90 days ?

Question

Company have two associated enterprises in 2 different country. Company providing credit period 60 days one company and 150 to another company. Company follow cost plus mark-up method for computation of arm length price. Company charge 15.5% mark up on cost. Can it be same for both customers if GAP in credit period is 90 days ?

Answer 1

Ideally it should not be same you should incorporate interest of 90 days

Answer 2

Company should factored in impact of working capital on main international transaction and thereby on its profitability/pricing vis-a-vis that of its comparables. Working capital adjustment subsumes the impact of outstanding receivables. Hence if working capital adjustment already done and if pricing is ALP after that then ideally there should not be any issue on gap of credit period.