Government Approves Issue of Circulars on Identification of Contract R&D Service Provider With Insignificant Risk and on Application of Profit Split Method Based on Recommendation of the Rangachary Committee; These Circulars Will Help in Providing Certainty to the Taxpayer on Issues Relating to Transfer Pricing of Development Centre

            The Rangachary Committee had submitted its report on “Taxation of Development Centres and IT Sector” on 14th September, 2012, making recommendations on the following issues:

  • parameters to identity contract R&D services provider with insignificant risk,
  • application of profit split method,
  • Condition for eligibility to claim deduction under section 10A, 10AA & 10B of Income Tax Act 1961 (the Act).
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After having examined the recommendations of the Committee, the Central Board of Direct Taxes (CBDT) has already issued a circular No. 01/2013 dated the 17th January, 2013 on issues relating to export of computer software under Sections 10A, 10AA, 10B of the Act.

The Government has now approved issue of circulars on identification of contract R&D service provider with insignificant risk and on application of profit split method based on the recommendation of the Committee with the following details:

–          Circular on application of profit split method : Circular No. 2/2013 dated 26.3.2013

–          Circular on condition relevant to identity development centres engaged in contract R&D services with insignificant risk : Circular No. 3/2013 dated 26.3.2013

CBDT is of the view that these circulars will help in providing certainty to the taxpayer on issues relating to transfer pricing of development centre.

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