The finance ministry is likely to ease safe harbour norms to bring more taxpayers under its ambit as transfer pricing disputes between the tax department and multinational companies surge.
Safe harbour prescribes the limit and conditions within which the price of cross-border transactions with a related company declared by an assessee is not questioned by tax authorities.
The draft norms, released last month to provide certainty to taxpayers, had said companies earning a turnover of more than Rs 100 crore would not be covered by the rules. This ceiling may now be increased in the final rules to be released this month.
“The limit will be changed because we are trying to include maximum number of taxpayers under the safe harbour rules,” said a finance ministry official who did not wish to be identified.
Besdies, multinational companies in India,transfer pricing disputes have also been there with Indian companies having subsidiaries abroad. The Income Tax department had sent transfer pricing notices to these companies for undervaluing transactions with their associates in 2012-13.
These included Shell, Vodafone, Essar, Bharti Airtel, HSBC Securities & Capital Markets, Microsoft, Standard Chartered Securities and IBM among others.
The industry had argued that the turnover limit for adopting safe harbour was so low that only a few small players would benefit from it and large taxpayers would not be covered. It had also made a case for lowering the minimum operating margins prescribed for safe harbour in the draft rules.
The tax department, however, may not provide much relaxation on this count as it believes that the numbers were derived after looking at some recent cases where taxpayers themselves had agreed to profit margins of 15 to 17% in relation to their operating expenses and revenues. The industry feels if these margins are retained, safe harbour rules may not find many takers.
“The economic situation does not support these kinds of margins. No one is making that kind of profits in the current environment,” said Rahul, Garg, Leader-Direct Tax, PwC.
For instance, for the IT sector, the draft rules had said only the companies having operating margins of 20% or more will be covered under the safe harbour norms. Those not adopting safe harbour norms can go for advance pricing agreement or mutual agreement procedure.
The margins are in line with the recommendations of the Rangachary committee on safe harbour rules. For the IT sector, it had recommended a margin of 20% for the first two years, which is 33% increase over the average margin of 15% disclosed in assessment year 2008-09. The committee had not prescribed any turnover cap for safe harbour rules.
The safe harbour rules will apply to information technology, IT enabled services, contract research & development in IT and pharmaceutical, financial transactions-outbound loans, financial transactions-corporate guarantees, and auto ancillaries-original equipment manufacturers.
“We are finalising the rules and these will be sent to the law ministry for vetting after getting an approval from the finance minister. It may be notified this month,” said another official.
Of about 3,200 cases taken up for transfer pricing (TP) auditing in 2012-13, an adjustment of Rs 70,000 crore was made in 1,600 cases. In 2011-12, an adjustment of Rs 44,531 crore was made in 1,343 cases. This represented an increase of 57%.
Safe harbour prescribes the limit and conditions within which the price of cross-border transactions with a related company declared by an assessee is not questioned by tax authorities.
The draft norms, released last month to provide certainty to taxpayers, had said companies earning a turnover of more than Rs 100 crore would not be covered by the rules. This ceiling may now be increased in the final rules to be released this month.
“The limit will be changed because we are trying to include maximum number of taxpayers under the safe harbour rules,” said a finance ministry official who did not wish to be identified.
Besdies, multinational companies in India,transfer pricing disputes have also been there with Indian companies having subsidiaries abroad. The Income Tax department had sent transfer pricing notices to these companies for undervaluing transactions with their associates in 2012-13.
These included Shell, Vodafone, Essar, Bharti Airtel, HSBC Securities & Capital Markets, Microsoft, Standard Chartered Securities and IBM among others.
The industry had argued that the turnover limit for adopting safe harbour was so low that only a few small players would benefit from it and large taxpayers would not be covered. It had also made a case for lowering the minimum operating margins prescribed for safe harbour in the draft rules.
The tax department, however, may not provide much relaxation on this count as it believes that the numbers were derived after looking at some recent cases where taxpayers themselves had agreed to profit margins of 15 to 17% in relation to their operating expenses and revenues. The industry feels if these margins are retained, safe harbour rules may not find many takers.
“The economic situation does not support these kinds of margins. No one is making that kind of profits in the current environment,” said Rahul, Garg, Leader-Direct Tax, PwC.
For instance, for the IT sector, the draft rules had said only the companies having operating margins of 20% or more will be covered under the safe harbour norms. Those not adopting safe harbour norms can go for advance pricing agreement or mutual agreement procedure.
The margins are in line with the recommendations of the Rangachary committee on safe harbour rules. For the IT sector, it had recommended a margin of 20% for the first two years, which is 33% increase over the average margin of 15% disclosed in assessment year 2008-09. The committee had not prescribed any turnover cap for safe harbour rules.
The safe harbour rules will apply to information technology, IT enabled services, contract research & development in IT and pharmaceutical, financial transactions-outbound loans, financial transactions-corporate guarantees, and auto ancillaries-original equipment manufacturers.
“We are finalising the rules and these will be sent to the law ministry for vetting after getting an approval from the finance minister. It may be notified this month,” said another official.
Of about 3,200 cases taken up for transfer pricing (TP) auditing in 2012-13, an adjustment of Rs 70,000 crore was made in 1,600 cases. In 2011-12, an adjustment of Rs 44,531 crore was made in 1,343 cases. This represented an increase of 57%.
No comments:
Post a Comment