The committee, which is operated by the Central Board of Direct Taxes (CBDT), will be made up of senior tax officials and representatives from trade and industry and will meet to discuss the finer details of the provisions.
Safe harbour provisions were announced in last July’s budget. It was explained that they will take two forms. These are the exclusion of certain classes of transactions from transfer pricing regulations and the stipulation of margins or thresholds for prescribed classes of transactions.
Another advantage provided by a safe harbour would be the certainty that a taxpayer’s transfer prices will be accepted by the tax administration.
Despite the provisions being passed into law, little is still known about when they will be introduced and what the safe harbour will be.
“No deadline has been set, so it is anyone’s guess as to when we will know more,” said Shyamal Mukherjee, head of transfer pricing at PricewaterhouseCoopers, in India. “One of the biggest challenges will be trying to figure out what the safe harbour should be. It is one thing to create a law, but it is a completely different task when applying it. My feeling is that it will be towards the upper end of the scale, maybe a 20% safe harbour.”
Before the law was passed, one of the main campaigners for safe harbour rules was the IT industry. In a post-budget comment, Som Mittal, the president of Nasscom, explained that rules needed to be “investor-friendly” to help business cope during the downturn.
As a result of this lobbying, it is expected that the IT industry may benefit from its own safe harbour provisions.
“There is a real possibility that the committee might focus their attentions on just the IT sector,” said Manisha Gupta, of Deloitte India. “But I’m not so sure if this will happen because there would be outrage if they give one rate for one industry and another for everyone else.”
However, one tax professional believes giving the IT sector specific rules is a good idea.
“The majority of transfer pricing litigation in India involves this sector and so specific rules could be a starting point to help reduce cases,” said Rohan Phatarphekar, head of KPMG India’s transfer pricing department.
Little is also known about when the first committee meeting will take place or whether the CBDT have given a deadline for establishing the rules. But an announcement is expected to be made in the budget on February 26.
