Transfer Pricing - Safe Harbour rules - Professionals - Taxation - TIK Share
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Transfer Pricing - Safe Harbour rules


Mukesh Jain CA

2014-01-12

Safe harbour rules have been prescribed by cbdt wef sep 2013. With these rules, cbdt has prescribed percentage of profit margins which can be taken by the assessee as profit margin. This has been done to avoid litigation & increase in no of transfer pricing cases. The assessee can straightly take these percentage of margins & the AO (assessing officer) will accept the same & there will not be any further litigation on the same. However these percentages seems to be very high.

The percentages prescribed are as under:

Eligible internationaltransaction

Threshold limit prescribed

Safe harbor margin

Provision of software development services &information technology enabled services with insignificant risks

Up to Rs 500 Crore

20 % or more on total operating costs

Above Rs 500 Crore

22 % or more on total operating costs

Provision of knowledge processes outsourcing services with insignificant risks

25 % or more on total operating costs

Advancing of intra-group loan to a nonresident wholly owned subsidiary

Interest rate equal to or greater than the base rate of SBI as on 30th June of relevant previous year

Up to Rs 50 Crore

Plus 150 basis points

Above Rs 50 Crore

Plus 150 basis points

Providing explicit corporate guarantee to wholly owned subsidiary (WOS)

The commission or fee declared in relation to the international transaction is

Up to Rs 100 Crore

at the rate of 2% or more per annum on the amount guaranteed

Above Rs 100 Crore, provided the WOS has been rated to be of adequate to highest safety by a rating agency registered with SEBI

at the rate of 1.75% or more per annum on the amount guaranteed

Provision of specified contract R&D services wholly or partly relating to software development with insignificant risks

30% or more on total operating costs

Provision of contract R&D services wholly or partly relating to generic pharmaceutical drugs with insignificant risks

29% or more on total operating costs

Manufacture and export of core auto components

12% or more on total operating costs

Manufacture and export of noncore auto components where 90% or more of total turnover during the relevant previous year is in the nature of original equipment manufacturer (OEM) sales

8.5% or more on total operating costs

 Finally i request all the viewers to share your views on this & please let me know if you want any clarifications.

CA Pulkit Sharma

2014-01-13

The rates are too high. Profit Margin guided looks over rated and dont think companies will follow this guideline.

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