The use of multiple year data is an important aspect of transfer pricing analysis. Rule 81 of the Income Tax Rules, 2026 specifies when and how multiple year data should be used in transfer pricing. Understanding these provisions is essential for taxpayers and practitioners.
The Statutory Framework
Rule 81: Multiple Year Data
Rule 81 provides that where the most appropriate method is RPM, CPM, or TNMM, and the comparable uncontrolled transaction has been identified using data relating to:
- The current year, and the enterprise has undertaken the same or similar comparable uncontrolled transaction in either or both of the two financial years immediately preceding the current year
- The financial year immediately preceding the current year (if the data relating to current tax year is not available at the time of furnishing return), and the enterprise has undertaken the same or similar comparable uncontrolled transaction in the financial year immediately preceding the two financial years
The weighted average of such prices shall be included in the dataset.
When Weighted Averages Apply
Case 1: Current Year Data Available
When data for the current year is available and the comparable enterprise has undertaken similar transactions in one or both of the preceding two years, the weighted average of the prices across all three years (or the available years) shall be included in the dataset.
Case 2: Current Year Data Not Available
When data for the current year is not available at the time of filing the return, and the comparable enterprise has undertaken similar transactions in the financial year immediately preceding the two financial years, the weighted average of the prices across the available years shall be included in the dataset.
Exception
If the use of current year data establishes that:
- The enterprise has not undertaken the same or similar uncontrolled transaction during the current year
- OR the uncontrolled transaction undertaken during the current year is not a comparable uncontrolled transaction
Then neither the price nor the weighted average of prices of the comparable uncontrolled transactions shall be included in the dataset.
Calculation of Weighted Averages
Method-Specific Weights
Resale Price Method: Quantum of sales considered for arriving at the respective prices
Cost Plus Method: Quantum of costs considered for arriving at the respective prices
Transactional Net Margin Method: Quantum of costs incurred, sales effected, assets employed, or any other base considered for arriving at the respective prices
Formula
Weighted Average = Σ (Value × Weight) / Σ Weight
Worked Example
Scenario
TNMM with OP/OC as PLI:
| Year | Enterprise A | Enterprise B |
|---|---|---|
| Year 1 | OP=12, OC=100 | OP=10, OC=80 |
| Year 2 | OP=10, OC=150 | OP=5, OC=125 |
| Year 3 | OP=35, OC=225 | Not available |
Enterprise A:
- Year 1: 12/100 = 12%
- Year 2: 10/150 = 6.67%
- Year 3: 35/225 = 15.56%
Weighted Average for Enterprise A:
- Weighted average OP/OC = (12+10+35)/(100+150+225) = 57/475 = 12%
Enterprise B:
- Year 1: 10/80 = 12.5%
- Year 2: 5/125 = 4%
Weighted Average for Enterprise B:
- Weighted average OP/OC = (10+5)/(80+125) = 15/205 = 7.32%
Dataset Construction
Include Weighted Averages
For each comparable enterprise, include the weighted average PLI in the dataset.
Dataset Example
Based on the above:
- Enterprise A: 12%
- Enterprise B: 7.32%
If there are more enterprises, include their weighted averages as well.
Special Considerations
Data Availability
Current Year Data Available: Include current year and preceding two years (if available).
Current Year Data Not Available: Include preceding year and the year before that (if available).
Comparable Transaction Not Undertaken in Current Year
If the comparable enterprise did not undertake the transaction in the current year, use data from the preceding years only.
Inconsistent Data
If the use of current year data establishes that the uncontrolled transaction is not comparable, exclude it from the dataset.
Documentation Requirements
Evidence of Multiple Year Data
- Data for all relevant years
- Calculation of weighted averages
- Identification of comparable years
- Justification of data selection
Data Sources
- Financial statements
- Annual reports
- External databases
Common Pitfalls and Compliance Issues
Incorrect Weights: Not using the correct weights for the method.
Missing Data: Not including all available years.
Stale Data: Using data that is no longer relevant.
Inconsistent Approach: Not consistently applying the multiple year approach.
Expert Legal Guidance
Understanding the use of multiple year data and weighted averages is essential for accurate transfer pricing. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping taxpayers apply multiple year data correctly and ensure compliance with transfer pricing requirements.