Draft Safe Harbour Rules

India’s Finance (No 2) Act, 2009 introduced provisions in the Income-tax Law that empowered the Central Board of Direct Taxes (CBDT), the apex Indian Tax Administration, to issue transfer pricing “safe harbor” rules. A “safe harbor” is defined in the ITL as circumstances in which the Tax Authority shall accept the transfer price declared by the taxpayer. On 14 August 2013, the CBDT released draft safe harbor rules for public comments. The draft rules propose to provide minimum operating profit margins in relation to operating expenses that a taxpayer is expected to earn for certain categories of international transactions, such as provision of software development services, contract research and development (R&D) services, and the manufacture and export of automotive components that will

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