A ‘safe harbour’ refers to circumstances in which income-tax authorities accept the transfer price declared by the taxpayer. The concept was introduced in the Indian transfer pricing regulations in 2009 to provide a certain degree of certainty to taxpayers. In his Budget speech this year, Finance Minister P. Chidambaram had announced that the safe harbour regime would be ushered in very soon. Industry is eagerly looking forward to it. A safe harbour regime will, in particular, benefit taxpayers in the services sector by adopting a transfer pricing mark-up in the range prescribed to avoid protracted litigation. It is well known that in recent years India’s services sector has notched a phenomenal growth rate, and it is imperative to provide an enabling environment for further growth.
Big interest seen in APAs
An advance pricing arrangement (APA) is an agreement between the taxpayer and the tax department on the pricing of a future transaction between related parties. As compared to the safe harbour regime, the APA law was introduced by Finance Bill 2012 and the scheme notified in August 2012. Though taxpayers were initially tentative about the scheme, latest reports show that more than 150 taxpayers have decided to file for an APA. Given the protracted litigation over transfer pricing, this was not unexpected. The Government must also get credit for being proactive and going out of its way to address taxpayers on their concerns and adopting a cooperative attitude. It is now for the Government to ensure that those who have opted for the APA stick to their promises and create a win-win situation for both.
A recent Delhi High Court ruling directing the tax department not to treat taxpayers at default if there is a mismatch between the tax claimed as deducted and what appears on the electronic statement has brought huge relief to a large number of salaried taxpayers who have been denied credit because of some technical flaws and mistakes. In an April 2012 letter, chartered accountant Anand Prakash highlighted the plight of taxpayers arising out of computerisation of TDS (tax deducted at source) records; only the TDS information uploaded by the collecting banks on the Tax Information Network on the basis of information submitted by the deductors is recognised. The Delhi High Court took the initiative and converted the letter into a public interest litigation.
Shine the light on cross-border deals
Many cross-border merger and acquisition deals are impacted as dealmakers and industry await the Government stand on the taxation of indirect transfers. Contrary to expectations, the Government chose not to take any steps on the recommendation of the Shome Committee in this regard. Finance Minister P. Chidambaram had later clarified that a stand would be taken after the resolution of the Vodafone dispute lying before the Cabinet. Though taxation of indirect transfers is now enshrined in law, the lawmakers have created situations where a literal reading creates an exposure that was never intended by the taxpayer. The Shome committee has taken note of these and the Government needs to implement its recommendations as soon as possible.
— Deloitte