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Amended Safe Harbour Rules on Transfer Pricing for

International Transactions: Key Highlights

Notification - The Central Board of Direct Taxes (CBDT), vide notification 46/2017 dated 7 thJune 2017
Amendment Applicability of SHR has been extended to an additional category of international transaction and revision has
been made in applicable price/margins that would be accepted as arms length.

Applicability - Safe harbour provisions are now applicable from AY 2017-18 up to AY 2019-20

Option to the taxpayer Option has been provided to opt for OLD provisions of Safe harbour or new provisions which ever
more beneficial for FY 2016-17

Some of the key highlights of amended safe harbour rules are presented as below:

From FY 2016-17 to 2018-19 Upto FY 2016-17


Threshold value
Eligible Prescribed Threshold value of Any other Prescribed
of eligible
International minimum eligible international respective minimum
international
Transaction margin1 transaction condition margin
transaction
Provision of Operating Profit Do not exceeds 100 Operating Profit Do not exceeds
software margin: 17% Crore rupees. - margin: 20% 500 Crore rupees.
development Exceeds 100 crore
services Operating Profit rupees but do not Operating Profit Exceeds 500 crore
margin: 18% exceeds 200 Crore margin: 22% rupees.
-
rupees.
Provision of Operating Profit Do not exceeds 100 Operating Profit Do not exceeds
information margin: 17% Crore rupees. - margin: 20% 500 Crore rupees.
technology Exceeds 100 crore
enabled Operating Profit rupees but do not Operating Profit Exceeds 500 crore
services margin: 18% exceeds 200 Crore margin: 22% rupees.
-
rupees.
Atleast 60% of
Operating Profit employee cost of
margin: 24% total operating
expense.
Provision of
Atleast 40% but do
knowledge
not exceed 60% of
process Operating Profit Do not exceeds 200 Operating Profit
employee cost of -
outsourcing margin: 21% Crore rupees margin: 25%
total operating
services
expense.
Maximum 40% of
Operating Profit employee cost of
margin: 18% total operating
expense.

1
Prescribed minimum margin is not applicable in case of Receipt of low value-adding intra-group services.

JGarg Economic Advisors Private Limited


707, Pearl Best Heights II, C-9 Netaji Subhash Place, PitamPura, New Delhi 110034
E-mail Id : gaurav@jgarg.com
Website : www.jgarg.com
From FY 2016-17 to 2018-19 Upto FY 2016-17
Threshold value
Eligible Prescribed Threshold value of Any other Prescribed
of eligible
International minimum eligible international respective minimum
international
Transaction margin1 transaction condition margin
transaction
Interest rate:
Base rate of
Advancing of SBI as on 30
Do not exceeds 50
intra-group - - - June of relevant
Crore rupees
Loans previous year +
150 basis
points.
Interest rate:
Base rate of
Advancing of SBI as on 30
Exceeds 50 Crore
intra-group - - - June of relevant
rupees
Loans previous year +
300 basis
points.
The interest rate declared in relation to the eligible international
transaction is not less than the one-year marginal cost of funds
lending rate of SBI as on 01st April of the relevant previous year
plus

(i) 175 basis points, where the AE has CRISIL credit rating
Advancing of between AAA to A or its equivalent;
intra-group
loans (ii) 325 basis points, where the AE has CRISIL credit rating of
where the BBB-, BBB or BBB+ or its equivalent;
amount of loan - -
is denominated (iii) 475 basis points, where the AE has CRISIL credit rating
in Indian between BB to B or its equivalent;
Rupees (INR).
(iv) 625 basis points, where the AE has CRISIL credit rating
between C to D or its equivalent; or
(v) 425 basis points, where credit rating of the AE is not available
and the amount of loan advanced to the AE including loans to all
AE in INR does not exceed a sum of 100 crore rupees in the
aggregate as on 31st March of the relevant previous year.

The interest rate declared in relation to the eligible international


transaction is not less than the 6 month LIBOR of the relevant
Advancing of foreign currency as on 30th September of the relevant previous
intra-group year plus
loans
where the (i) 150 basis points, where the AE has CRISIL credit rating
amount of loan between AAA to A or its equivalent; - -
is denominated
in foreign (ii) 300 basis points, where the AE has CRISIL credit rating of
currency. BBB-, BBB or BBB+ or its equivalent;

(iii) 450 basis points, where the AE has CRISIL credit rating
between BB to B or its equivalent;
JGarg Economic Advisors Private Limited
707, Pearl Best Heights II, C-9 Netaji Subhash Place, PitamPura, New Delhi 110034
E-mail Id : gaurav@jgarg.com
Website : www.jgarg.com
From FY 2016-17 to 2018-19 Upto FY 2016-17
Threshold value
Eligible Prescribed Threshold value of Any other Prescribed
of eligible
International minimum eligible international respective minimum
international
Transaction margin1 transaction condition margin
transaction

(iv) 600 basis points, where the AE has CRISIL credit rating
between C to D or its equivalent; or

(v) 400 basis points, where credit rating of the associated


enterprise is not available and the amount of loan advanced to the
associated enterprise including loans to all associated enterprises
does not exceed a sum equivalent to one hundred crore Indian
rupees in the aggregate as on 31st March of the relevant previous
year.
Commission: Commission:
Providing
1% p.a. of 2% /1.75% p.a.
corporate - - -
amount of amount
guarantee
guaranteed guaranteed
Provision of
contract
research and
development
Operating Profit Do not exceeds 200 Operating Profit
services - -
margin: 24% Crore rupees margin: 30%
wholly or
partly relating
to software
development
Provision of
contract
research and
development
services Operating Profit Do not exceeds 200 Operating Profit
- -
wholly or margin: 24% Crore rupees margin: 29%
partly relating
to generic
pharmaceutical
drugs
Manufacture
and export of Operating Profit Operating Profit
- - -
core auto margin: 12% margin: 12%
components
Manufacture
and export of Operating Profit Operating Profit
- - -
non-core auto margin: 8.5% margin: 8.5%
components

JGarg Economic Advisors Private Limited


707, Pearl Best Heights II, C-9 Netaji Subhash Place, PitamPura, New Delhi 110034
E-mail Id : gaurav@jgarg.com
Website : www.jgarg.com
From FY 2016-17 to 2018-19 Upto FY 2016-17
Threshold value
Eligible Prescribed Threshold value of Any other Prescribed
of eligible
International minimum eligible international respective minimum
international
Transaction margin1 transaction condition margin
transaction
Certification by
accountant in
relation to;
method of cost
Receipt of low Maximum pooling;
value-adding markup on exclusion of
Do not exceeds 10
intra-group respective share- holder - -
Crore rupees
services international cost;
transaction: 5% duplicate cost
from cost pool;
Reasonabl-eness
of allocation
method

Other aspects needs to be considered in amended safe harbor rules-

In Rule 10TA of Income Tax Rules definition of low value-adding intra group services & employee cost has been
provided.

Under the amended rules, eligible assessee upon its own discretion can choose old safe harbor rules if they are more
beneficial to assessee.

Rule 10TA has been amended in relation to definition of contract R&D services wholly or partly relating to software
development which exclude services which involves making available source code to carry out routine functions like
debugging of the software.

For Private Circulation Only

JGarg does not assume any responsibility for the information given under the document. While every effort has made to
avoid errors or omissions in this publication, it is suggested that to avoid any doubt the reader should cross-check all
the facts, law and contents of the publication with original Government publication or notification or judgment. JGarg
neither accepts nor assumes any responsibility or liability for any act undertaken by any reader of this publication in
whatsoever manner.

JGarg Economic Advisors Private Limited


707, Pearl Best Heights II, C-9 Netaji Subhash Place, PitamPura, New Delhi 110034
E-mail Id : gaurav@jgarg.com
Website : www.jgarg.com