The Central Board of Direct Taxes (CBDT) has extended the provisions of safe-harbour rules to outbound transactions involving an Indian company lending to foreign one. Currently,the safe harbour norms only applied to inbound intra-group loans.
The amendments, notified on Tuesday, have tweaked the definition of intra-group loans and also removed the condition of sourcing the loan only in Indian rupees. The amendments will come into effect from April 1, 2024.
In a transfer-pricing (TP) regime, safe harbour is a provision that applies to a defined category of taxpayers or transactions and that relieves eligible taxpayers from certain obligations otherwise imposed by a jurisdiction’s general TP rules, according to the IT Department. Often, eligible taxpayers complying with the safe harbour provision will be relieved from burdensome compliance obligations.
The amended rules say that ‘intra-group loan’ means loan advanced to an associated enterprise being a non-resident, where the loan is not advanced by an enterprise, being a financial company including a bank or a financial institution or an enterprise engaged in lending or borrowing in the normal course of business. Also, such loan doesn’t include credit line or any other loan facility which has no fixed term for repayment.
Experts say the amendment to the safe harbour rules, is primarily to align with the current global economic scenario where the money could be sourced by the lending Indian company in currencies other than Indian rupees.
The other operating amendments which allow certain income and expenses on which depreciation has been claimed. “This move is primarily to rationalise the computation mechanism of operating profits in safe harbour norms,” said Amit Agarwal, partner, Nanging & Co LLP.
Saurrav Sood, Practice Leader – International Tax and Transfer Pricing at SW India, said, “the amendments to the safe harbour rules shall apply from FY25 onwards, thus those entities which are contemplating to opt for safe harbour as measure to gain certainty on transfer pricing transactions can accordingly change their budgeting.”