CBDT Statement on Safe Harbour Rules
IN order to reduce the increasing number of transfer pricing audits and prolonged disputes, the Finance (No.2) Act, 2009 w.r.e.f 1.4.2009 inserted a new section 92CB to provide that determination of arm's length price under section 92C or Section 92CA shall be subject to safe harbour rules. Vide this amendment, the Government of India had empowered the CBDT to make Safe Harbour rules. “Safe harbour” was defined to mean circumstances in which the income-tax authorities shall accept the transfer price declared by the assessee. Thereafter, the issuance of the Safe Harbour Rules was examined and discussed at various points of time, but no finality could be reached.
The major recommendations of the Rangachary Committee have been accepted, with some modifications, and the following decisions have been taken by Government:
(1) Safe harbour for the sectors recommended by the Rangachary Committee shall be applicable for two assessment years beginning from 2013-14.
(2) Safe harbour for various sectors, subject to certain ceilings prescribed.
(3) Safe harbour rules shall not be applicable in respect of an international transaction entered into with an associated enterprise located in any country or territory notified under section 94A of the Income-tax Act, 1961, or in a no tax or low tax country or territory.
(4) Safe harbour rules shall be applicable only where a taxpayer exercises his option to be governed by such rules in a specified form to be furnished before the due date of filing of return.
(5) Where the Transfer Pricing Officer is of the opinion that the option exercised by the assessee is valid, he shall intimate acceptance of transfer price declared by the assesse to the assessing officer and the assessee within a period of six months from the end of the month in which reference under section 92CA is received from the assessing officer.
(6) A taxpayer opting for safe harbour rules shall not be allowed to invoke Mutual Agreement Procedure (MAP) provided under the relevant DTAAs.
(7) Where the safe harbour rules are not applicable in the case of an assessee, engagedin providing contract research and development services with insignificant risks, the Transactional Net Margin Method (TNMM) shall be considered as the most appropriate method for the determination of arm's length price unless it is shown by the assesse that it is not feasible to apply this method in the facts and circumstances of the case.
The draft rules along with the Second to the Sixth report of the Rangachary Committee have been posted on the website of the Income-tax Department. All stakeholders are requested to provide their comments, if any, by 26th August, 2013 to the Director (FT&TR) at her email id batsala.yadav@nic.in