Transfer Pricing: CBDT Issues Important Directives On Safe Harbour Rules
Pursuant to the Safe Harbour Rules in Rules 10TA to 10TG, the CBDT has issued a letter dated 20.12.2013 in which it has laid down important directives and clarifications on the manner in which the Safe Harbour Rules are meant to be implemented. The directives and clarifications are as follows:
(i) AOs should carefully verify and provide to the CBDT in writing the details of all Form 3CEFA received by them relating to Safe Harbour Options;
(ii) There should be no confusion between Safe Harbour Option filed in paper format in Form 3CEFA and the Form 3CEB (detailing international transactions) which is filed electronically. The AO has to examine the form and decide within 2 months of the end of the month in which the option is filed as to whether to accept the Safe Harbour option or to make a reference to the TPO. If no action is action, the Safe Harbour option will be considered as having been accepted and it will remain valid for 5 years;
(iii) If there are minor defects in Form 3CEFA, the AO has to provide an opportunity to the taxpayer to rectify the same. However, the statutory time limit of 2 months provided in Rule 10TE (14)(i) cannot be exceeded;
(iv) The AO has to verify the eligibility of the assessee and the international transactions. Under Rule 10TF, the Safe Harbour Rules will not apply to a country notified in s. 94A (e.g. Cyprus);
(v) If the taxpayer has opted for Safe Harbour but has reported rates or margins less than the Safe Harbour rates or margins, the income has to be computed on the basis of the Safe Harbour rates or margins;
(vi) The Safe Harbour rates or margins are not a benchmark for cases not covered by the Safe Harbour Rules. In such cases, a regular transfer pricing audit should be carried out without regard to the Safe Harbour rates or margins.