CBDT amends safe harbour norms for MNC group transactions


NEW DELHI :The Central Board of Direct Taxes (CBDT) has amended the Income Tax rules to liberalize the ‘safe harbour’ norms that allow multinational companies to avoid rigorous audit of their cross-border transactions by following certain requirements.

The changes introduced through the Income-tax (Twenty-Ninth Amendment) Rules, 2023 will be effective from 1 April 2024, showed an official order.

Cross-border transactions of MNCs among their group entities are an area tax authorities keep a close watch on due to the potential of these transactions for artificial shifting of profits from one jurisdiction to another. However, in order to bring tax certainty and to offer relief to genuine transactions, countries offer safe harbour regimes, under which the transaction price cited by a company will be accepted subject to riders. Meeting those parameters allows companies to avoid transfer pricing audits.

Experts said the rules modify definition of intra-group loans for the purpose of safe harbour norms. Earlier, only the loans issued in Indian currency and issued to wholly-owned subsidiary were included in the definition of intra-group loans. After this amendment, loans issued in currency other than the Indian rupee or loans provided to associated enterprise other than wholly-owned subsidiary will also be included in the definition of intra-group loans.

The rules also redefine operating expenses and operating income. The latest changes seem to have been made to address the long-pending concerns of tax professionals and multinationals, experts said.

“With the widened definitions of intra-group loans, the tax department may see increasing number of taxpayers opting for safe harbour provisions who have foreign currency loan transactions with their group entities,” explained Amit Maheshwari, Tax Partner at AKM Global, a tax and consulting firm.

“Further, changes with respect to definition of operating expenses/income were warranted for a long time since profit/ loss on sale of assets employed in business was becoming an ambiguous issue lately,” said Maheshwari.

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