The Finance Ministry today notified safe harbour norms to ensure certainty in taxation of overseas transactions between related entities and reduce transfer pricing litigations.
Applicable to six sectors including IT and ITES, auto ancillary and pharma, companies can take refuge under the norms for 5 years to avoid long drawn legal tangle with the government.
"Based on representation received rules should be applicable for 5 years for greater certainty," Revenue Secretary Sumit Bose told reporters here.
As per the recommendations of the Rangachary committee, the safe harbour rules were applicable only for 2 years.
The final norms as notified today lay down a set procedure for calculating "arm's length price".
The concept of an arm's length transaction is to ensure that both parties are acting in their own self interest.
The ministry has relaxed various provisions to ensure more companies come under the purview of Safe harbour norms and the transaction threshold has been raised from Rs 100 crore to Rs 500 crore for IT, ITES sector.
Transaction up to Rs 500 crore would have a safe harbour margin of 20% and those above Rs 500 crore would have margin of 22%.
Definition of KPO has also been rationalised to provide reasonable distinction from regular business process outsourcing activity. The safe harbour operating margin for this has been reduced to 25% from 30%, as per the recommendation of Rangachary committee.
With respect to KPO business the transaction threshold has been removed.
The ceiling has also been done away with for corporate guarantee as long as the Wholly-owned-subsidiary has been rated to be of adequate safety by a Sebi registered rating agency.
"Based on the recommendations of various groups and associations the government has made some modifications. But as far as the rates go, margins are per the Rangachary committee recommendation," Bose added.
The Ministry had come up with draft safe harbour norms on August 14 and had invited comments from stakeholders.
