Transfer Pricing and Related-Party Transactions

For two decades Nepal had a transfer pricing power and no transfer pricing regime. Section 33 of the Income Tax Act 2058 (2002) lets the tax authority allocate income and deductions between associated persons so as to reflect what unrelated parties would have agreed. Nothing more. No prescribed method, no documentation obligation, no filing, no published guidance on how the Department would use the power. Advisers priced intra-group transactions on judgement and hoped the question never came up.

That stopped being true in 2025. The Inland Revenue Department published Transfer Pricing Directives 2024 (2081 BS) on 12 Shrawan 2082, corresponding to 27 July 2025, made under sections 33 and 139 of the Act. Anyone still working from the older picture is working from the wrong picture.

The 2024 Directive

We were not able to retrieve the Directive itself. The Department’s page for it is a document viewer that does not expose the underlying file, and no mirror was found. What follows is drawn from a published analysis by a Kathmandu chartered accountant and is flagged accordingly.

On that account the Directive applies from income year 2024/25. Where cross-border controlled transactions with associated persons exceed NPR 100 million in a year, it requires three things familiar to anyone who has done this work elsewhere: a comparability analysis, an analysis of functions performed, assets employed and risks assumed, and a benchmarking study showing the price sits within an arm’s-length range. Chapter 5 is reported to prescribe the transactional net margin method, with the range taken between the 35th and 65th percentiles where seven or more comparables are available and a simple average where there are six or fewer.

The 35-to-65 range is narrower than the interquartile range used in most jurisdictions. Applied to a thin set of comparables it produces a tighter band, and so a higher probability that a taxpayer’s actual margin falls outside it. That is a policy choice with real consequences, and the reason the primary text is worth reading.

The comparables gap

A benchmarking study needs comparables, and comparables need a database of company financial statements. Nepal does not have one that a taxpayer can use.

The Office of Company Registrar operates CAMIS, and its public company data portal exposes registration-level facts. Audited financial statements filed with the Registrar are not published in a form that can be downloaded and searched. The Department’s own filings database, which the Directive is reported to list as a source, is protected by taxpayer confidentiality. Commercial databases exist but cover Nepali private companies thinly or not at all.

The result is a requirement to prove a margin against a population nobody can observe. Practitioners fall back on regional comparables from Indian or wider South Asian datasets, which raises its own comparability question in an economy with different cost structures, different scale and a different currency arrangement. The drafting is sound enough; the sequencing is the problem. The documentation regime arrived before the data infrastructure it assumes.

Safe harbours and advance pricing agreements

For FY 2083/84 (2026/27) two further mechanisms are reported. Both Shankar Associates, writing on 14 June 2026, and NBSM & Associates, writing on 8 July 2026, describe a safe harbour rule inserted as section 33Ka and an advance pricing agreement mechanism as section 33Kha, together with new definitions of “international transaction” and “associated enterprises” in section 2.

The definitional changes reported alongside them may matter more than the safe harbour itself. An “international transaction” is described as any cross-border dealing in goods, services, finance or intangibles that affects income, expense, assets or liabilities. “Associated enterprises” is described as turning on a thirty percent interest, a fifty percent dependence on loans from the counterparty, dominant reliance on the counterparty’s intellectual property, or supply of ninety percent or more of raw materials. A supply-chain relationship with no shareholding at all can therefore bring two companies inside the regime. That is a wider net than most group treasury functions expect.

The reported safe harbour parameters are specific enough to be worth setting out, with the caveat that we could not confirm them against the statute:

Category	Reported safe harbour
Information technology service exports	Minimum operating profit margin of 15 percent on operating cost
Intra-group foreign currency loans	Benchmark reference rate plus 200 to 400 basis points
Low value-adding intra-group services	Mark-up capped at 5 percent of total cost
Eligibility ceiling	NPR 1 billion a year
Election period	Five consecutive income years, absent material change

The eligibility ceiling is where the two accounts diverge. One describes NPR 1 billion of annual controlled transactions; the other describes annual turnover of NPR 100 crore, which is the same number applied to a different measure. For a company with NPR 3 billion of turnover and NPR 400 million of related-party dealings, that difference decides whether the safe harbour is available at all.

The advance pricing agreement mechanism is described as permitting unilateral, bilateral and multilateral agreements fixing a method prospectively for up to five years, with an optional roll-back of four years. A bilateral agreement requires a treaty partner willing to negotiate, and Nepal’s treaty network runs to eleven jurisdictions. Most taxpayers will have the unilateral route and nothing else.

What we could not confirm

We searched the text of the Finance Act 2083 as published by the Nepal Law Commission for sections 33Ka and 33Kha and did not find them. That published text runs to 55 sections; sections 54 and 55 amend the Liquor Act 2031 and the Value Added Tax Act 2052 respectively, and no section of it amends the Income Tax Act 2058 at all. Either the income tax amendments for FY 2083/84 were made by a separate instrument we did not locate, or the published file is incomplete, or the reported provisions are not yet law. We cannot tell which from the material we obtained, and a company deciding whether to elect into a five-year safe harbour should establish which before electing.

Two further absences are worth naming. We found no requirement anywhere for a master file, a local file or country-by-country reporting, and we do not assert that any exists. And we could not verify from any OECD source whether Nepal participates in the Inclusive Framework on base erosion and profit shifting or has adopted any element of the global minimum tax. Statements to the contrary circulate; none that we found was sourced.

What groups should do

The compliance question has changed shape. Three years ago the exposure was a discretionary adjustment under section 33 with no roadmap. Now there is a roadmap, a threshold, a prescribed method and a narrower-than-usual arm’s-length range, applied by an administration new to the subject and working without the data the method assumes.

That combination tends to produce assessments built on whatever comparables the assessing officer can obtain, which leaves the taxpayer needing to have prepared something better first. Build the functional analysis and the documentation contemporaneously, for the year in which the transactions occur, and say plainly which comparables were used and why domestic ones were unavailable. A file that explains the data gap is a stronger position than one that ignores it.

Sources

1. Transfer Pricing Directives, 2024 (2081 BS)

   Inland Revenue Department, Ministry of Finance · Published 12 Shrawan 2082 (27 July 2025) · Tier 1 — Primary legal instrument

   Supports: The existence, issuer, title and publication date of Nepal's transfer pricing directive. The document text itself could not be retrieved from this page.

   Accessed 26 August 2026

2. आयकर ऐन, २०५८ (आर्थिक ऐन, २०८२ ले गरेको संशोधन सहित) — Income Tax Act 2058, as amended by the Finance Act 2082

   Inland Revenue Department, Ministry of Finance · Posted 18 Poush 2082 (January 2026); Act in force · Tier 1 — Primary legal instrument

   Supports: That the Income Tax Act 2058 is the enabling statute, and that the Department's own consolidated text was current only to the Finance Act 2082 as at 26 August 2026.

   Accessed 26 August 2026

3. The Database Gap — Why Nepal's Transfer Pricing Directive 2024 Has a Data Problem

   Shankar Associates, Chartered Accountants (author Shankar Thapa) · 26 May 2026 · Tier 6 — Professional or news source

   Supports: That the Directive is made under sections 33 and 139 of the Income Tax Act 2058 and applies from income year 2024/25; the NPR 100 million documentation threshold; the transactional net margin method and the 35th-to-65th percentile range; and the absence of an accessible comparables database.

   Accessed 26 August 2026

4. Changes in Income Tax Act 2058 of Nepal by Finance Bill 2083

   Shankar Associates, Chartered Accountants (author Shankar Thapa) · 14 June 2026 · Tier 6 — Professional or news source

   Supports: The description of new definitions of international transaction and associated enterprises, a safe harbour rule at section 33Ka and an advance pricing agreement mechanism at section 33Kha permitting unilateral, bilateral and multilateral agreements for up to five years with an optional four-year roll-back.

   Accessed 26 August 2026

5. Safe Harbour Rule — Transfer Pricing Nepal

   NBSM & Associates, Chartered Accountants · 8 July 2026 · Tier 6 — Professional or news source

   Supports: The safe harbour parameters: a 15 percent minimum operating profit margin for information technology service exporters, intra-group foreign currency loans priced at a benchmark plus 200 to 400 basis points, a 5 percent cap on cost mark-up for low value-adding services, and a five-year election.

   Accessed 26 August 2026

6. आर्थिक विधेयक, २०८३ / आर्थिक ऐन, २०८३ (Finance Act 2083), full text as published

   Government of Nepal, published by the Nepal Law Commission · Published 19 Shrawan 2083 (4 August 2026); commencement 1 Shrawan 2083 (17 July 2026) for most provisions · Tier 1 — Primary legal instrument

   Supports: That the published text of the Finance Act 2083 runs to 55 sections, of which sections 54 and 55 amend the Liquor Act 2031 and the Value Added Tax Act 2052, and that no section of it amends the Income Tax Act 2058.

   Accessed 26 August 2026