Govt to notify transfer pricing norms for R&D centres

The government today approved the issue of norms for identification of contract R&D service providers with insignificant risk and on application of profit split method on the basis of the recommendations of the Rangachary Committee.

The new norms will help in providing certainty to the taxpayer on issues relating to transfer pricing of development centers, an official release said.

The Rangachary Committee, which submitted its report on `Taxation of Development Centres and IT Sector' on 14 September 2012, has made the following recommendations:

• Parameters to identity contract R&D services provider with insignificant risk;
• Application of profit split method; and
• Condition for eligibility to claim deduction under section 10A, 10AA & 10B of Income Tax Act 1961 (the Act).

The Central Board of Direct Taxes (CBDT), which examined the recommendations of the committee, has already issued a circular on issues relating to export of computer software under Sections 10A, 10AA, 10B of the Act.

The government has now approved issue of circulars on identification of contract R&D service provider with insignificant risk and on application of profit split method based on the recommendation of the committee.

CBDT expects these circulars to help in providing certainty to the taxpayer on issues relating to transfer pricing of development centre.