Nepal's Inland Revenue Department (IRD) has significantly increased scrutiny of related-party transactions over the past two fiscal years. With the 2081/82 (FY 2024/25) budget lowering the documentation threshold to NPR 10 million, transfer pricing compliance is now relevant to a much wider range of enterprises.
Who Is Affected
Any enterprise that transacts with a related party — whether a parent company, subsidiary, branch, or entity under common control — must now maintain transfer pricing documentation if aggregate annual transactions exceed NPR 10 million. This includes:
Management fees and shared service allocations
Royalty and technology license payments
Intercompany loans and guarantees
Purchase or sale of goods between group entities
Cost-sharing arrangements
Documentation Requirements
The IRD expects documentation that follows OECD Transfer Pricing Guidelines adapted to Nepal's regulatory context:
Master File — group structure, business overview, and global transfer pricing policies
Local File — detailed analysis of each material intercompany transaction, including functional analysis and benchmarking
Country-by-Country Report — required for groups with consolidated revenue exceeding NPR 10 billion
Penalty Structure
Failure to maintain documentation: NPR 500,000 per fiscal year
Adjustment on assessment: 50% penalty on additional tax determined, plus interest at 15% per annum
Repeated non-compliance may trigger a comprehensive tax audit spanning up to 5 fiscal years
Practical Steps
Map all related-party transactions and quantify annual volumes
Assess whether current pricing aligns with arm's-length standards
Prepare or update transfer pricing documentation before the filing deadline
Consider an Advance Pricing Agreement (APA) for recurring high-value transactions
Our Transfer Pricing Practice
Our tax practice advises multinational groups operating in Nepal on transfer pricing compliance, with practitioners experienced in Nepal's tax assessment processes. We offer documentation preparation, benchmark studies, and representation before the IRD.
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