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13.4.1. Main Rules

Cook Islands has adopted Transfer Pricing ('TP') regulations from 17 June 2014 issued by Ministry of Finance and Economic Management. The Income Tax laws of Cook Islands has provisions requiring transactions between related parties to be conducted at arm's length, however, detailed provisions were not included for its implementation. The TP regulations provide guidance on application of said provisions of the Income tax Act. In case of conflict, the Income Tax Act and these TP rules take precedence over the OECD transfer pricing guidelines.

Definition of Related Parties

Two entities are considered to be related where one entity, directly or indirectly, and either alone or together with an associate or associates, controls more than 50% of the voting power or rights to income or capital of the other entity or has ability to control business decisions of the other entity.

According to the tax laws, the transfer pricing regulations apply to transactions between following parties:

  • Resident and non-resident related party; or
  • Resident parties; or
  • Permanent Establishment of a non-resident in the Cook Islands and a non-resident person outside the Cook Islands.

Applicable TP Methods

The TP regulations provide following five TP methods which are in line with OECD guidelines to test the arm's length principle in respect of related party transactions:

  • Comparable Uncontrolled Price ('CUP') Method
  • Resale Price Method
  • Cost Plus Method
  • Transactional Net Margin Method
  • Profit Split Method

A different TP method can also be used, provided none of the approved methods can be reasonably applied and that the other method provides a result consistent with the arm's length principle.

Use and Availability of Comparable

The concept of use of comparable in the benchmarking study as per the TP rules is consistent with the OECD guidelines.