Month: March 2013

Transfer Pricing: CBDT Circular On Research & Development Centres

It has been brought to the notice of CBDT that there is divergence of views amongst the field officers and taxpayers regarding the functional profile of development centres engaged in contract R&D services for the purposes of transfer pricing audit. Moreover, while at times taxpayers have been insisting that they are contract R&D service providers with insignificant risk, the TPOs are treating them as full or significant risk-bearing entities and making transfer pricing adjustments accordingly. The issue has been examined in CBDT. It is hereby clarified that a development centre in India may be treated as a contract R&D service provider with insignificant risk if the following conditions are cumulatively complied with

Transfer Pricing: CBDT Circular On Application Of Profit Split Method

It has been brought to the notice of CBDT that clarification is needed for selection of profit split method (PSM) as most appropriate method. The issue has been examined in CBDT. It is hereby clarified that while selecting PSM as the most appropriate method, the following points may be kept in mind

CBDT Directive Regarding Adjustment of Refunds Against Demand

The Directorate of Income-tax (Systems) has issued a letter dated 21.03.2013 drawing attention to the judgement of the Delhi High Court in Court on Its Own Motion vs. CIT where directions were issued that the department has to follow the procedure prescribed in s. 245 before making any adjustment of refund payable by the CPC. As the Court has held that the assessee must be given an opportunity to file a response before any adjustment of refund is made, the Assessing Officers have been directed to comply with the High Court’s order and communicate their findings on adjustable demand to the CPC which will then process the refund and adjust the demand

Finance Ministry Clarification Regarding Tax Residency Certificate (TRC)

However, it has been pointed out that the language of the proposed sub-section (5) of section 90 could mean that the Tax Residency Certificate produced by a resident of a contracting state could be questioned by the Income Tax Authorities in India. The government wishes to make it clear that that is not the intention of the proposed sub-section (5) of section 90. The Tax Residency Certificate produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status

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