Prime Minister Manmohan Singh has established a committee to review taxation policies that have a direct impact on software exporters, business process outsourcing (BPO) companies and technology development centres of multinationals in the country.

A file photo of Prime Minister Manmohan Singh.
The committee, led by N. Rangachary, former chairman of the Central Board of Direct Taxes, will look into issues of levying taxes on development centres, tax treatment of so-called onsite services of domestic software firms, and also finalise the safe harbour provisions announced in Budget 2010.
Safe harbour provisions are a proposed set of rules under which the income tax (I-T) department will accept the transfer price of international transactions declared by the company without a detailed scrutiny. Transfer price is the price at which one unit of a firm sells goods or services to another unit of the same company.

Development centres and BPO firms have been grappling with transfer pricing issues for several years, with companies claiming a significant proportion of their profits are stuck with the I-T department because of this.

Over 750 multinationals have such centres at over 1,100 locations in India.

Also, companies such as Infosys Ltd have been in the past slapped a tax demand of over Rs. 450 crore for claiming tax exemption on onshore services by declaring them as software exports. A few other companies have also received notices from the I-T department because of different interpretation of onshore activities. The industry has sought clarifications in this regard.

Singh had earlier set up an expert committee under Parthasarathi Shome, director and chief executive of think tank Indian Council for Research and International Economic Relations, to finalize guidelines for the contentious general anti-avoidance rules, whose proposed introduction with retrospective effect in this years budget evoked protests from foreign investors.