Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: form 3cd :: Central Excise rule to resale the machines to a new company :: articles on VAT and GST in India :: cpt :: empanelment :: list of goods taxed at 4% :: VAT Audit :: VAT RATES :: ACCOUNTING STANDARDS :: TAX RATES - GOODS TAXABLE @ 4% :: due date for vat payment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: TDS
 
 
« Direct Tax »
 CBDT puts on hold circular on taxation of indirect transfer of shares
 CBDT prods officials to meet tax collection targets
 Budget 2017: Direct tax reforms to be gradual than radical, says KPMG
  FM Arun Jaitley may drop tough tax accounting rules
 FM Arun Jaitley may drop tough tax accounting rules
 How to view your TDS through form 26AS?
 Deduction of tax at source Income-tax deduction from salaries under section 192 of the Income-tax Act, 1961
 Banks must furnish information on accounts that have seen deposits over 2.5 lakh: CBDT
 Govt expects direct and indirect tax targets to exceed budget estimates this fiscal
 Tax recovery from Swedish majors in payment dispute put on hold
 CBDT signs three more advance pricing pacts

CBDT panel finds hole in transfer pricing tax rate
January, 25th 2010

The Central Board of Direct Taxes (CBDT) is in a fix over the application of one safe harbour rate to all sectors. A committee, formed last month to frame safe harbour rules as announced in the 2009-10 Budget to minimise transfer pricing disputes, has estimated that there is a huge difference in the margins of companies which would come under the ambit of safe harbour.

The rules will apply to all sectors, such as information technology (IT), business process outsourcing, IT-enabled services (ITeS), auto, garments, wrist watches and liquor, that involve international transactions between two related companies. We are discussing what should be the ideal safe harbour rate. The problem is that in the IT sector alone, margins vary between 5 per cent and 75 per cent and they change every six months, a CBDT member told Business Standard.

Transfer pricing refers to cases where a company outsources work to its own subsidiary and profits are thereby transferred from one entity to the other. Taxation of captive units has become a complex area for the revenue department, with the government often disagreeing on the profits declared by a foreign company for its Indian unit.

Demands for transfer pricing rose from Rs 3,500 crore in 2007-08 to Rs 10,000 crore in 2009-10. In a safe harbour regime, transfer prices declared by a taxpayer would be accepted by revenue authorities.

Experts, however, argue that a lower rate should not be a problem, as it evens out in the long run. The industry is of the view that the rate should be based on the average margins of the industry.

In a presentation made to the committee, headed by CBDT member Prakash Chandra, consultancy firm Deloitte proposed a safe harbour margin of cost plus 12 per cent for the IT or ITeS industry.

Margins do not fluctuate too much. Uncertainty around markups causes concerns among multinational companies, thus affecting foreign investment. All over the world, the rate is cost plus 5, 7 or 10 per cent, said Paul Riley, leader (Asia-Pacific) of global transfer pricing, Deloitte.

According to consultants, instead of a range (for example between 10 and 15 per cent) there should be one single rate for safe harbour, with the flexibility of a minor adjustment of 2.5 per cent on either side.

The government, however, wants to keep the rate higher to avoid any kind of revenue loss. It is also discussing whether the rate can be based on something else and not on margins.

A finance ministry official said the same rules and the rate would be applicable to all the sectors but the interpretation of the rules would be different to suit the needs of each sector. The government is trying to frame the rules before the next Finance Bill is introduced in 2010.

Safe harbour is a significant source of revenue in some advanced countries like the US and Australia. In India, however, it does not constitute a major part of the governments revenues, as the tax department picks up cases with international transactions worth Rs 15 crore and above in a year.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Software Reengineering Software Re-engineering Software Reverse Engineering Software Reverse Development Software Change Modulation Software Conversion Software Re-creation Software Re-development

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions