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New rules to cut transfer pricing disputes
September, 14th 2017

India has unveiled a new set of rules that aim to further provide certainty to multinationals and reducing transfer pricing disputes and litigation.

The Central Board of Direct Taxes (CBDT) has revamped the norms called the safe harbour rules, unveiled in 2013, under which income tax authorities do not question pricing of dealing between multinational companies and a related party such as their subsidiaries. The rules were not much relied upon by the industry that wanted them further aligned with the prevailing sectoral standards. The new norms will benefit a host of sectors such as IT and ITeS, pharma and automobile.

“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 CBDT has notified a new safe harbour regime based on the report of the Committee set up in this regard,” the CBDT said in a statement on Thursday.

Tax experts say India has made changes in line with the Multilateral Convention of Base Erosion and Profit Shifting (BEPS). “India has derived the principles for acceptability of management fee from BEPS Action 10 and though India has not accepted the BEPS Action 10 report on low value added service fees, it has partly aligned itself to the report of the OECD [Organisation for Economic Cooperation and Development]. It’s a huge relief for smaller taxpayers and would help in reducing TP controversy,” said Vijay Iyer, national leader-transfer pricing services at EY.

Management fee has been a big pain point for MNCs with subsidiaries in India and has been a matter of many appeals filed with the tribunal.

The new rules come into effect from April 1, 2017, and shall continue to remain in force for two succeeding years, up to assessment year (AY) 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 — Receipt of Low Value-Adding Intra-Group Services — has also been introduced.

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