Indian transfer pricing safe harbours in the post COVID-19 era

Following the outbreak of the COVID-19 pandemic, the Government of India has taken several measures to support and refuel the economic growth of the country with a focus to boost employment. The Transfer Pricing (TP) Safe Harbour provisions being one of such measures is eagerly anticipated by the fraternity to be softened substantially, especially, to help cope with the post-COVID-19 business realities.

The report by Grant Thornton Bharat in collaboration with FICCI, Indian transfer pricing safe harbours in the post-COVID-19 era, provides insights to various stakeholders on the impact of the COVID-19 crisis on the emerging economies, developing countries and various sectors, which are directly/indirectly impacted by this pandemic situation. Further, it touches upon the genesis as well as the current structure of transfer pricing safe harbour regulations.

This report details some of the important and requisite expectations from industry stakeholders such as rationalisation of safe harbour margins, widening the scope of safe harbour rules to bring additional international transactions within its ambit, upward revision in thresholds, regulate for any economic change such as LIBOR phase-out, etc.

Implementing such measures may assist the Government of India’s perception to rank up on parameters such as ease of doing business, attract foreign investment and as a result increase employment opportunity and augment tax collections for the country.

Some of the key global trends that may be considered while announcing TP SH 2022:

• Cost arbitrage (being the low-cost country) has gradually reduced over a period with the increase in the overall cost of operations, thereby compelling MNCs to develop alternative jurisdictions for setting-up global service delivery centres.
• Over the last decade, many jurisdictions (primarily developing countries in Europe and Asia) nurtured and developed available skillset in a structured manner to offer alternative service delivery pockets to MNCs.
• Any position under TP SH 2022, which increases the possibility of in-depth scrutiny for the foreign associate enterprise in its tax jurisdiction, will act as an impediment for the taxpayer in India to opt for the SH.
• By making TP SH 2022 an attractive option, GOI should make all possible attempts to positively influence MNCs’ decisions to maintain their back-office operations in India.