Safe Harbor Rules – Transfer Pricing

CA Ankur Singhal 25 May 2018 26,202 Views 0 comment Print Income Tax | Articles

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APPLICABILITY OF SAFE HARBOUR RULES

The revised Safe Harbour Rules (SHRs) apply for AY 2017-18 and two immediately following AYs i.e. upto AY 2019-20. The earlier SHRs were applicable from AY 2013-14 and four immediately following AYs i.e. upto AY 2017-18. For AY 2017-18, the taxpayer can choose from old or new rules whichever are more beneficial.

SAFE HARBOUR RATES

ELIGIBLE INTERNATIONAL TRANSACTION	SHR-PRE REVISION	SHR-POST REVISION
Provision of Software Development Services and Information Technology Enabled Services	Operating profit margin to operating expense Where the aggregate value of such transactions < INR 500 crore-not less than 20 per cent Where the aggregate value of such transactions> INR 500 crore-not less than 22 per cent	Operating profit margin to operating expense Where the aggregate value of such transactions < INR 100 crore-not less than 17 per cent Where the aggregate value of such transactions> INR 100 crore but < 200 crore-not less than 18 per cent
Provision of Knowledge Process Outsourcing (KPO) services	Operating profit margin to operating expense not less than 25 per cent	The value of international transaction < INR 200 crore and the operating profit margin to operating expense is- Not less than 24 per cent, if the employee cost to operating expense is atleast 60 per cent Not less than 21 per cent, if the employee cost to operating expense is greater than 40 per cent or more but less than 60 per cent Not less than 18 per cent, if the employee cost to operating expense does not exceed 40 per cent
Provision of Intra-group loan to Wholly Owned Subsidiary (WOS)	Interest rate equal to or greater than the base rate of State Bank of India(SBI) as on 30^th June of the relevant previous year: Plus 150 basis points where the amount of loan is < INR 50 crores Plus 300 basis points where the amount of loan is >INR 50 crores	The threshold of INR 50 crore has been removed Different safe harbour rates have been prescribed for Loan denominated in Indian Rupees (INR) Loan denominated in foreign currency
Provision of Corporate Guarantee to WOS	Where the amount guaranteed < INR 100 crores- commission or fee of 2 per cent or more per annum Where the amount guaranteed> INR 100 crore and the credit rating of the borrower by a Securities and Exchange Board of India (SEBI) registered agency is of the adequate to highest safety- Commission or fee of 1.75 per cent or more per annum	The differential rates of 2 per cent and 1.75 per cent have been moderated down to a standard rate of 1 per cent irrespective of the amount guaranteed. However the requirement for the credit rating of the borrower to be certified by a SEBI registered agency and such credit rating be of adequate to highest safety still remains for amount guaranteed INR 100 crore.
Provision of specified contract research and development services (Contract R&D services), wholly or partly relating to software development	Operating profit margin to operating expense not less than 30 per cent	The operating profit margin to operating expense not less than 24 per cent, where the value of the international transaction is < INR 200 crore
Provision of contract research and development services (Contract R&D services), wholly or partly relating to generic pharmaceutical drugs	Operating profit margin to operating expense not less than 29 per cent	The operating profit margin to operating expense not less than 24 per cent, where the value of the international transaction is < INR 200 crore
Manufacture and export of: Core auto components Non-core auto components where 90 per cent or more of total turnover relates to Original Equipment Manufacturing sales	Operating profit margin to operating expense: Not less than 12 per cent Not less than 8.5 per cent	Operating profit margin to operating expense: Not less than 12 per cent Not less than 8.5 per cent
Receipt of low value-adding intra group services		Aggregate value of such transactions (including a mark-up not exceeding 5 per cent), does not exceed INR 10 crore Method of cost pooling, exclusion of shareholder costs and duplicate costs from cost pool and the reasonableness of the allocation keys used for allocation of costs to be certified by an accountant