India Drafts Safe Harbor Policy to Reduce Transfer Pricing Disputes

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Transfer-Pricing-300-230Aug. 28 – India’s Ministry of Finance has released a draft proposal with new rules governing the safe harbor policy for transfer pricing calculations. The draft proposal aims to simplify and codify the country’s transfer pricing scheme following a record increase in tax and audit disputes last year.

Transfer pricing is used when two affiliated companies exchange goods. It should be calculated using the arms-length principal, which states that the price charged should be equivalent to the price that would be charged by a third-party. Tax authorities pay special attention to transfer pricing as companies may undervalue the exchange of their products in order to avoid a larger tax bill, resulting in burdensome compliance procedures and tax disputes.

Under the safe harbor policy, income tax authorities will accept the transfer prices declared by associated entities operating in different tax jurisdictions.

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Court Ruling Says Payment in Kind Also Subject to Tax

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Aug. 4 – A recent Supreme Court decision has ruled that payment made in kind will also be subject to taxes in India.

This was based on an appeal made in court by local company Kanchanganga Sea Foods regarding its payment in kind to Hong Kong-based company Eastwide Shipping for lending the use of vessels and personnel. The Indian company gave Eastwide 85 percent of fish catch as payment. It was able to get its foreign partner official permission to fish in an Indian economic zone.

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Insurance Sector May Increase Cap on FDI

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Jun. 23 – India is considering lifting its foreign direct investment cap on the insurance sector from 26 percent to 49 percent according to Finance Minister Pranab Mukherjee.

“We have committed to allow 49 percent and the necessary legislation is pending before the House, as the leg process will be completed it will be done…in a year or so.” Pranab Mukherjee told NDTV during an Indo-U.S. CEO forum in Washington.

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Suzuki to Invest US$215 Million on New Factory in Haryana

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Sept. 7 – Japanese automaker, Suzuki Motors, has announced plans to invest US$215 million for a new car factory in India by 2011 with a yearly capacity of 250,000 cars.

Suzuki wants to maintain its 50 percent market share in the face of rising competition from other automakers reports Reuters. The new Suzuki plant will be based on the current Manesar facility in the Haryana state located 50 kilometers from New Delhi.

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Bank Employees Begin Strike Today

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Aug. 6 – Employees of India’s private, overseas and state banks numbering more than 900,000 will begin their two-day strike today.

An estimated 26 state-run banks, 10 private banks and eight foreign banks will be affected when its workers join the strike organized by the United Forum of Bank Unions (UFBU). “We seek expedition of wage revisions,” C H Venkatachalam, convener of the UFBU,was quoted by Bloomberg. “There is no question of calling off the strike now.”

The banking workers are demanding at least a 17.5 percent salary hike, pension benefits and that family members of those who die in service be employed.

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