The Bahrain National Bureau of Revenue (NBR) has released guidance on the computation of market value associated with related party transactions for VAT calculations. As per Article 22 of the VAT Law and Article of 24 of the Executive Regulations, if the value of supply is lower than the market value in a transaction between related party and if the customer cannot deduct input VAT in full, then the computation of VAT should be on market value of the good or service exchanged.
The market value of the goods or services would be calculated based on the price of identical or similar goods or services traded on an open market between independent participants. For this, the following conditions should prevail:
- The is no commercial pressure on the market participants
- Both the participants independently work for their advantage
- The transaction should be completed in a reasonable period of time without time pressure
If the above said is not possible, the market value should be determined using the methodologies in the OECD guidelines. Any business registered for VAT should maintain a record evidencing the methodologies used to calculate the market value. If the records are not provided in 30 days, NBR will conclude the market value to be greater than what is computed by the supplier.