XII. TRANSFER PRICING

Posted on June 21, 2008

1. No listed company shall use a price other than the arm’s length price except in rare circumstances where, subject to the approval of the Board of Directors and for reasons to be recorded in writing, it is in the interest of the company to do so.
2. The Board of Directors of a listed company shall approve the transfer pricing policy for a related party transaction before such transaction is entered into.
3. For each related party, every listed company shall prepare a statement to record the methods for determining transfer prices of various types of transactions with such party, which shall form the basis on which these transactions are entered into.
4. Every listed company shall maintain a party wise record of transactions, in each financial year, entered into with related parties in that year along with all such documents and explanations as shall enable the ascertainment of arm’s length price of the transactions. The record of related party transaction shall include the following particulars in respect of each transaction: 

1. Name of related party;
2. Nature of relationship with related party;
3. Nature of transaction;
4. Amount of transaction;
5. Terms and conditions of transaction, including the amount of consideration received or given;
6. Basis or method for determining such consideration;
7. Detailed assumption and estimates underlying the transfer price and details of computation of transfer price; and
8. A statement whether, in management’s opinion, such consideration is an arm’s length price along with appropriate explanation in case of an exception to arm’s length price.

5. Where an officer (as defined in the Companies Ordinance, 1984) of a listed company possesses knowledge that a transaction may not be consummated at an arm’s length price, he/she shall inform the same to the Company Secretary at least 15 business days before the execution of transaction, giving reasons for departure from the arm’s length price. The Company Secretary shall immediately notify the matter to the Board of Directors.
6. The record of all related party transactions (including exceptional transactions that are not executed at arm’s length price) shall be placed before the ­Audit Committee of the company.
7. The record of all related party transaction shall also be placed before the Board of Directors at each Board meeting for formal approval.
8. The related party transactions which are not executed at arm’s length price will also be placed separately at each Board meeting along with necessary justification for consideration and approval of the Board and before the Audit Committee of the company.
9. The listed companies shall present the record of related party transactions together with all relevant documents, agreements, calculations and explanations to the statutory auditor for the purposes of the statutory audit.
10. All listed companies shall publish and circulate a statement along with their annual reports to setout the status of their compliance with the best practices on Transfer Pricing as setout above.
11. All listed companies shall ensure that statement of compliance with the best practices of Transfer Pricing is reviewed and certified by statutory auditors.