In
order to reduce transfer pricing disputes, to provide certainty to taxpayers,
to align safe harbour margins with industry standards and to enlarge the scope
of safe harbour transactions, the Central Board of Direct Taxes (CBDT)
has notified a new safe harbour regime based on the report of the Committee set up in this
regard.
The salient
features of the new Safe Harbour Regime are:
·
It
has come into effect from 1st of April, 2017, i.e. A.Y. 2017-18 and shall
continue to remain in force for two immediately succeeding years thereafter,
i.e. up to A.Y. 2019-2020.
·
Assessees
eligible under the present safe harbour regime up to AY 2017-18 shall also have
the right to choose the safe harbour option most beneficial to them.
·
A
new category of transactions being “Receipt of Low Value-Adding
Intra-Group Services” has been introduced.
·
The
new safe harbour regime is available for transactions limited to Rs. 200 crore
in provision of software development services, provision of information
technology-enabled services, provision of knowledge process outsourcing
services,
provision
of contract Research and Development services wholly or partly relating to
software development and provision of contract research and development
services wholly or partly relating to generic Pharmaceutical drugs.
·
In
respect
of transactions involving provision of software development services and
provision of information Technology-enabled services, safe harbour
margins have been reduced to peak rate of 18% from 22% in the previous
regime.
·
In
respect of transactions involving provision of knowledge process outsourcing
services, a graded structure of 3 different rates of 24%, 21% and 18% has been
provided, based on employee cost to operating cost ratio, replacing the single
rate of 25% in the previous regime.
·
In
respect
of transactions involving provision of contract research and development
services wholly or partly relating to software development and provision of
contract research and development services wholly or partly relating to generic
pharmaceutical drugs, safe
harbour margins have been reduced to 24% from 30% and
29% respectively in the previous regime.
·
Risk
spreads on intra-group loans denominated in foreign currency will be
benchmarked to the 6-month London Inter-Bank Offer Rate (LIBOR) as on 30th
September of the relevant year and on loans denominated in Indian Rupees to the
1-year SBI MCLR as on 1st April of the relevant year.
·
The
safe harbour regime is optional to taxpayers.
The notification is available on the department’s
website www.incometaxindia.gov.in
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DSM/AK
