New transfer pricing rules in Mongolia
Mongolia • No. 05/2020 • May 2020
The tax reform effective from 1 January 2020 introduced new transfer pricing (“TP”) rules to align with the international requirements. The first reporting period is 2020 with a reporting deadline in February 2021. This tax alert summarises main highlights of these updates.
General TP principle introduced in the law
If conditions of the transactions between related parties (“controlled transactions”) are different from conditions of transactions between unrelated parties (“independent transactions”), and the tax base was reduced as a result, the tax base shall be increased by the differences of such reduced amount and relevant reassessed tax shall be levied.
TP legislation
- The General Taxation Law, dated 22 March 2019, provides general TP rules including the TP principles, requirements for TP reporting, use of TP methods and TP adjustments.
- The Corporate Income Tax Law, dated 22 March 2019, along with tax rules applied in related party transactions, provides the detailed guideline on a country-by-country reporting.
- “The Regulation on TP adjustment and selection of TP methods” approved by the Ordinance # 308 of the Minister of Finance and dated 31 December 2019 provides the detailed guidance on a comparability analysis, TP adjustment, application of TP methods.
The tax authorities can also use the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations by Organization for Economic Cooperation and Development (the “OECD TP Guidelines”) for TP adjustment and other purposes, if there are no definite rules in the domestic TP legislation, provided it does not contradict the latter.
Scope of TP legislation
TP rules apply to all types of transactions conducted between related parties. The legislation does not provide any monetary thresholds for related party transactions to be in the scope of the TP rules. The Mongolian TP rules apply to both cross-border and domestic related party transactions.
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