The Finance (No 2) Act, 2009 had introduced provisions in the Indian tax Law (ITL) which empowered the Central Board of Direct Taxes (CBDT), the apex Indian Tax Administration, to notify transfer pricing “safe harbour” rules. A “safe harbour” is defined in the ITL as circumstances in which the Tax Authority shall accept the transfer price declared by the taxpayer. On 14 August 2013, the CBDT had released draft safe harbour rules for public comments[1]. After considering comments of various industry stake holders, on 18 September 2013, a press release issued by the Government of India announces that the safe harbour rules have been finalised.
The transfer price contained in the safe harbour rules shall be applicable for five years beginning from assessment year 2013-14 (financial year 2012-13). The safe harbour provisions would be available only if the taxpayer satisfies the eligibility conditions provided in the rules and in respect of such international transactions which are eligible for safe harbour as provided in the rules. A taxpayer can opt for the safe harbour regime for a period of his choice but not exceeding five assessment years. This option can be exercised by filing of Form 3CEFA which has been prescribed in the rules.
Further, the option exercised by the taxpayer is held to be valid for the period opted unless the taxpayer voluntarily opts out of safe harbour regime by furnishing a statement to this effect to the Assessing Officer (AO).
In addition to modifying the safe harbour transfer prices for certain categories of transactions, the press release also suggests that changes have also been made to some of the procedural and compliance provisions of the draft rules.
A more detailed alert on the final rules along with our comments would follow shortly once the final safe harbour rules are notified.
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