India: Revised “safe harbour rules” | KPMG | US

India: Revised “safe harbour rules” focus on transfer pricing disputes

India: Revised “safe harbour rules”

The Central Board of Direct Taxes—in an effort to address the increasing number of transfer pricing audits and prolonged disputes—has issued revised “safe harbour rules.”

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Safe harbour rules were originally issued in September 2013. Nevertheless, the safe harbour program has received what is described as a “tepid response” from taxpayers in India, due to perceived high margins and ambiguity in the classification of services. In an effort to address these issues, the tax authorities on 7 June 2017 issued revised safe harbour rules. 

The new safe harbour rules for all contract services have been revised:

  • For information technology services, the safe harbour rates are reduced to 17% - 18% from a range of 20% - 22%.
  • The safe harbour rates for “knowledge process outsourcing” services is 18%, 21% or 24% depending on the percentage of employee cost to operating cost (reduced from 25%)
  • The safe harbour rates for contract research and development (R&D) service providers is 24% (reduced from 29% - 30%).

There are new provisions concerning the safe harbour for receipt of low value-adding intra-group services, and safe harbour rates are introduced for loans advanced in a foreign currency. The new guidelines also clarify the definitions of operating costs and operating revenue.

 

Read a June 2017 report [PDF 340 KB] prepared by the KPMG member firm in India

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