Captive Service Providers To Benefit From New Safe Harbour Rules
By Team Legistify / 2017-06-11

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A revision of ‘safe harbour’ rules will encourage smaller captive service providers, especially in the information technology and research and development space, to take the route to avoid transfer pricing litigation, tax experts told BloombergQuint.

The new rules, which came into effect from April 1, are also likely to reduce stress on the lengthy and expensive Advanced Pricing Agreement (APA) process, they said.

Generally, 'safe harbour' refers to circumstances in which the income-tax authorities accept the transfer price declared by the assessee. The safe harbour rules lay down limits within which a transfer price for intra-group transactions is acceptable.

The rules came into effect in 2013 and were intended to fix a minimum operating profit margin for certain international transactions between an Indian company and its overseas affiliate. As long as taxpayers stuck to the profit margins laid down in the rules, the transfer-pricing compliance remained litigation free and simple.

Key Changes

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