IT sector analysts, taxation experts and IT industry body Nasscom welcomed the PM's move to set up a panel to clarify taxation policies related to the sector, saying a taxation regime in line with the best international practices would boost investor confidence.
With many litigations emerging from the complex tax regime related to transfer pricing (TP), "safe harbour provisions" were announced in the Finance Bill in 2010 that was aimed at resolving disputes and provide certainty to the taxpayer.
But it has not been operationalised, though the Central Board of Direct Taxes (CBDT) has finalized the framework for safe harbour provisions.
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Safe harbour provisions benefit both the taxpayers and the tax authorities in determining the transfer price of international transactions. A safe harbour means "circumstances" in which the transfer pricing declared by the assesee shall be accepted by the revenue authorities without much scrutiny.
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It provides the taxpayers with much needed certainty, relief from compliances and associated costs, while tax authorities will be relieved of much of their administrative burden.
Mudigonda Vishweshwar, senior director in Deloitte India, said, "This can bring in much needed litigation relief to the taxpayers facing aggressive transfer pricing audits in India. This is a positive move that increases the confidence of foreign companies in setting up or expanding their operations in India."
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