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Finmin to form new tax norms for foreign firms
September, 14th 2010

The Finance Ministry today said safe harbour rules --- a set of norms that would enable the income tax (I-T) authorities to accept without scrutiny the tax returns by the Indian units of foreign companies -- would be soon put in place.

"Safe harbour rules are at an advanced stage of consideration. I can't share how the guidelines are going to be...it will be a very favourable programme... we are working on it and it will be in place as early as possible," Central Board of Direct Taxes Chairman S S N Moorthy said at an Assocham seminar here.

He said the norms would be taxpayer friendly. The Central Board of Direct Taxes (CBDT) has set up a committee to formulate rules for the safe harbour provisions on transfer pricing returns.

Transfer pricing refers to the price at which one arm of a company, usually a multinational corporation, transfer goods or services to another division of the same organisation in order to calculate each arm's profit and loss separately.

The committee comprises senior tax officials and representatives of trade and industry as well as Institute of Chartered Accountants of India (ICAI).

Its objective is to set conditions under the safe harbour rules to facilitate acceptance of a transfer pricing return without scrutiny.

The committee is expected to set an acceptable margin which would act as a benchmark for the industry.

Moorthy also said the Direct Taxes Code bill (DTC) proposes General Anti Avoidance Rules (GAAR) to prevent abuse of double taxation avoidance agreement by some.

He assured that GAAR would be implemented in a very modest, responsible and tax friendly manner.

The CBDT Chairman also informed that DTC bill also proposed to bring public sector units under the ambit of Advance Rulings and Dispute Resolution (Authority) to resolve tax disputes.

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