NASSCOM welcomes the announcement of Safe Harbour rules

NASSCOM is delighted that the Safe Harbour rules have been issued . We believe that the combination of Safe Harbour provisions and the Advance Pricing Agreement (APA) will help resolve the tax and Transfer Pricing related concerns of global companies who have set up development centres in India.

These centres contribute almost one third of the export revenue of the IT ITes sector. The government’s notification will help reduce litigation, offer certainty and would help attract new investment as well as expansion of existing centres. It will also reduce the burden of the tax department, judiciary etc where a large number of cases have been accumulating.

The Safe Harbour rules are applicable for five years which provides a reasonable time frame. We are also pleased that an appeal mechanism has been introduced ensuring that there is no unfair denial of Safe Harbour to eligible tax payers. The Safe Harbour are applicable to both small and large corporations without any cap on the transaction value.

NASSCOM and the industry has been working with the Government for a long period. We appreciate that the Government adopted a very consultative process for determining several of the provisions and many of the concerns raised by the industry have been addressed. While the details of the rules are awaited we are hopeful that the implementation downstream at field level would carry the same spirit and intent and would interpret the various provisions such as relating to definition of KPO services etc in line with industry practices. This is the first time that Safe Harbour provisions are being used in the country and we are confident that should there be any issues in implementation this would also be resolved through a consultative process.

One of the key areas however is now to ensure that the provisions and the mechanism of the Safe Harbour are acceptable to corresponding tax authorities in the countries which receive these services.

India is a preferred destination for IT, BPM, Engineering Services and products. We hope that through a slew of announcements such as on SEZs, non applicability of Profit Split, APA and now Safe Harbour provisions will send a strong message particularly to MNCs who were concerned about the uncertainty on taxation, large demands and ensuing litigation. We are hopeful that we would see increased growth of export revenues and investments from these companies.