CBDT Rationalizes Safe Harbour Rules

The CBDT has revised the Safe Harbour Rules w.e.f. 1 April 2017 vide Notification No. 46/2017/ F. No. 370142/6/2017-TPL. The revised Safe Harbour Rules provides for a decrease in the Safe Harbour margins for most of the eligible international transactions and the inclusion of low value adding intra group services as one of the eligible international transactions. The revised margins for eligible international transactions have been introduced as sub-rule (2A) in Rule 10TD which shall be applicable from the AY 2017-18 for three consecutive years. The existing option of Safe Harbour Rules under sub-rule (2) was available from AY 2013-14 for five consecutive years. However, an eligible assessee has the right to exercise the option under either sub-rule (2) or sub-rule (2A) of Rule 10TD, whichever is beneficial.

Our Comments The revised safe harbour scheme comes at a time when the tax compliance burden of MNCs is set to go up on account of a global effort coordinated by the Organization for Economic Cooperation and Development (OECD) to tackle aggressive tax planning of businesses. The safe harbor margins have been rationalized and made more taxpayer friendly. However, reducing the threshold limit of outsourcing activities from INR 500 crores to INR 200 crores may not go well with the taxpayers having international transactions more than INR 200 crores. The concept of low-value-added intragroup services (management fees) was introduced in BEPS Action Plan 13 wherein such services are defined to mean activities which are not the principle business activities of the entity providing such services. The introduction of such safe harbour category will help many multinational companies having intra-group transaction value of less than or equal to INR 10 crores.