• Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 9/20/2013

India - Safe harbor rules are finalized 

September 20: India’s Central Board of Direct Taxes this week announced that the safe harbor rules (as released in draft form in August 2013) have been finalized by the Ministry of Finance after comments to the draft rules were considered.

The rules provide a “safe harbour” under which the tax authorities will accept transfer prices as declared for international transactions.

Under the safe harbor rules, ratios for eligible international transactions based on industry sectors are provided, and offer a degree of relief and certainty. For instance, with respect to software development or IT services, the safe harbor ratio for operating profit margin-to-operating expense can be 20% or 22% (depending on the aggregate value of the international


Final rules

In comparing changes that are included in the final safe harbor rules to the draft rules proposal, it has been observed that a “consultative approach” has been adopted by the revenue authorities.

The final safe harbor rules provide:

  • A five-year term for application of the safe harbor (the draft provide a two-year period), and allow taxpayers to select the period for which the safe harbor rules will apply, with the period applicable for any one, more or all of the five years (e.g., taxpayers may opt out of the safe harbor from the second year and onwards)
  • No upper or lower threshold requirements for eligibility
  • Categories for various eligible international transactions and services
  • A timeline and rights for taxpayers to appeal adverse orders of the Assessing Officer / Transfer Pricing Officer
  • Procedural requirement for taxpayers who are to be governed by the safe harbor rules

Read a September 2013 report [PDF 348 KB] prepared by the KPMG member firm in India: Transfer Pricing – Safe Harbor Rules – Notified

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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