In a conscious bid to reduce litigation with multinational corporations on the applicability of transfer pricing norms, the government is likely to introduce new taxation rules in this regard by early September.

Known as ‘Safe harbour rules’, the softer new regulations will enable tax authorities to accept the transfer pricing claims of foreign companies without further scrutiny, provided the norms drawn up for paying for services across borders between different units of these entities are adhered to. In recent times, trans-national corporations have been pulled up by governments across the globe as transfer pricing regulations are brought into play by these companies for the express purpose of avoiding payment of taxes.

At a press briefing here on Wednesday, Revenue Secretary Sumit Bose indicated that the new regulations based on the Rangachary Committee reports marks acceptance of the recommendations, and these are now being put in the public domain for suggestions from stakeholders.

In an official statement, the Finance Ministry has noted that the safe harbour rules for the sectors recommended by the Rangachary Committee shall be applicable for two assessment years beginning from 2013-14. As per the safe harbour norms for various sectors, these would be subject to certain ceilings.

For instance, provision of software development services other than contract R&D where the total value of international transaction does not exceed Rs.100 crore would be subject to that the operating profit margin declared in relation to operating expense incurred is 20 per cent or more

For provision of information technology enabled services other than contract R&D where the total value of international transaction does not exceed Rs 100 crore, the operating profit margin declared in relation to operating expense has to be 20 per cent or more.

For provision of information technology enabled services being knowledge processes outsourcing services other than contract R&D where the total value of international transaction does not exceed Rs.100 crore, the rules would apply if the operating profit margin declared in relation to operating expense incurred relation to operating expense is 30 per cent or more.

For the manufacture and export of core auto components, the transfer pricing norms would apply if the operating profit margin declared in relation to operating expense is 12 per cent or more, and for manufacture and export of non-core auto components, the operating profit margin declared in relation to operating expense should be 8.5 per cent or more. Safe harbour rules shall not be applicable in respect of an international transaction entered into with an associated enterprise located in any country or territory notified under Sec. 94A of the Income-tax Act, 1961, or in a no tax or low tax country or territory.