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Panel formed to review IT sector taxation

To finalise tax provisions by August 31,attempt to finalise safe harbour rules

Written by ENS Economic Bureau | New Delhi |
July 31, 2012 1:28:21 am

Prime Minister Manmohan Singh today set up a committee to look into tax issues impacting the IT sector,satellite television and pharmaceutical research and development among others.

The four-member panel,chaired by former Irda chairman N Rangachary,will also look at finalising safe harbour or tax shelter options for foreign investors in these sectors.

“It was felt that there is still a need to address some other issues relating to taxation of the IT sector such as the approach to taxation of development centres,tax treatment of ‘onsite services’ of domestic software firms,and also the issue of finalising the safe harbour provisions announced in Budget 2010,” the PMO said in a statement.

Safe harbour rules will help in checking litigations in transfer pricing — an accounting mechanism undertaken by MNCs to reduce tax liabilities. “Safe harbour provisions have the advantage of being a good risk mitigation measure,provide certainty to the tax payer,” the statement said.

Lauding the move,Nasscom president Som Mittal said,“We believe this announcement would allay concerns of industry,global corporations and investors… This committee will help address current issues being faced by the sector as well as focus on implementing the safe harbour provision”.

Safe harbour was announced in the Budget 2010 but could not be implemented. Mukherjee had set up a group under the director general international taxation Milap Jain to study the feasibility of the provisions. The report had concluded that India,at this juncture,did not need such provisions given the complexity of business structures here unlike any other country.

The committee will finalise the provisions for taxation of the IT sector by August 31. It will attempt at removing ambiguity and finalising safe harbour rules individually,sector-by-sector,in a staggered manner. The draft provisions for three sectors/sub-activities will have to submitted each month starting September 30 while all provisions are expected to be finalised by December 31.

Many multi-national firms carry out product development,analytical work and software development through captive entities in India. They operate in a wide range of fields that are popularly called development centres.

Over 750 MNCs have such centres at over 1,100 locations in India.

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