Nasscom has welcomed new guidelines in India's Safe Habor law that aim to reduce tax disputes, which have been the ire of foreign organizations with outsourced operations.
In a statement released Wednesday, the Indian industry body said the new provisions along with the country's advanced pricing agreement (APA) will help resolve concerns over tax and transfer pricing issues among global companies that have set up development centers in India. These facilities contribute almost one third of export revenue for the Indian IT and IT-enabled services sector, noted Nasscom.
Transfer pricing rules apply to cross-border transactions conducted by organizations, as well as their affiliates, in other countries, and help Indian tax authorities put a tax value on goods and services foreign companies pay when transacting with local companies.
"The government's [Safe Harbor] notification will help reduce litigation, offer certainty, and help attract new investment as well as expansion of existing centers," Nasscom said. "It will also reduce the burden of the tax department, judiciary, and so on, where a large number of cases have been accumulating."
Applicable for five years and to organizations without any cap on transaction value, the Safe Harbor rules also include an appeal mechanism, which it said will ensure there is no unfair denial of Safe Harbor to eligible taxpayers.
"This is the first time Safe Harbor provisions are used in the country and we are confident should there be any issues in implementation, this would also be resolved through a consultative process," it said, adding that the government had "adopted a very consultative process" in determining several of the provisions and addressed concerns raised by the industry.
Nasscom said it was hopeful the new provisions would also address concerns among multinational corporations over the uncertainty on taxation and litigation. "We are hopeful we would see increased growth of export revenues and investments from these companies," it said.
Nokia and Vodafone are among several major global organizations embroiled in tax disputes with the Indian government. Local tax authorities had been aggressively pursuing tax claims against MNCs operating in the country, with a focus on their IT and backoffice functions.
This had raised concerns about the impact on foreign investment, especially with the high volume of outsourced activities in India by foreign organizations. According to an Ernst & Young survey conducted in August 2012, over 1,500 transfer-pricing disputes proceeded to litigation in the Asian economy.