Panel set up to review taxation of development centres, IT

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SME Times News Bureau | 30 Jul, 2012
In yet another move to provide clarity on taxation issues, Prime Minister Manmohan Singh today set up a committee to look into such matters pertaining to IT sector and research and development related activities.

The panel, headed by former Central Board of Direct Taxes (CBDT) chairman N Rangachary, will be in addition to the one set up to review the General Anti-Avoidance Rules (GAAR) provisions to address the concerns of foreign investors.

The new four-member committee will hold consultations with stakeholders and related government departments to finalise the approach to taxation of Development Centres and suggest appropriate measures.

Many MNCs carry out activities such as product development, analytical work, software development, etc. through captive entities in India. They exist in a wide range of fields including IT software, IT hardware, Pharmaceutical R&D, other automobile R&D and scientific R&D. These are popularly called Development Centres.

Over 750 MNCs have such centres at over 1100 locations in India.

The newly set Committee will finalise the Safe Harbour Rules individually sector-by-sector in a staggered manner and submitting draft Safe Harbour provisions for three sectors/sub-activities each month beginning with the first set of suggestions by September 30.

Safe Harbour principles are international disclosure practices to check litigations in transfer pricing -- an accounting mechanism undertaken by MNCs to reduce tax liabilities.