{"id":3993,"date":"2017-06-24T09:33:37","date_gmt":"2017-06-24T04:03:37","guid":{"rendered":"https:\/\/taxclick.org\/?p=3993"},"modified":"2017-06-24T09:36:42","modified_gmt":"2017-06-24T04:06:42","slug":"low-value-adding-intra-group-services-welcome-introduction","status":"publish","type":"post","link":"https:\/\/taxclick.org\/type\/income-tax\/low-value-adding-intra-group-services-welcome-introduction\/","title":{"rendered":"Low Value-Adding Intra-Group Services \u2013 A welcome introduction"},"content":{"rendered":"

The Safe Harbour Rules (SHR) were amended by Notification No. 46\/2017 dated 07-06-2017 issued by the Ministry of Finance, Central Board of Direct Taxes (CBDT). The term Safe Harbour is defined under section 92CB of the Income Tax Act, 1961 as circumstances under which the authorities shall accept transfer pricing declared by the assessee. It can also be construed as a conduct which will be deemed not to violate the rules of the Act. This recent amendment has widened the scope of SHRs by including within its ambit a provision relating to Low Value-Adding Intra-Group Services. Indian provisions relating to SHR are in consonance with the guidelines issued under the Base Erosion Profit Shifting plan (BEPS) plan of Organization for Economic Co-operation and development (OECD)\/G20.<\/span><\/p>\n

The Base Erosion Profit Shifting plan (BEPS) was developed by Organization for Economic Co-operation and Development (OECD) and developed by G20 leaders in the year 2013. The main objective behind this plan is to ensure that the governments are well equipped with domestic and international instruments to curb tax avoidance and to make sure that the profits are taxed where the profit generating economic activities are performed and value is created. BEPS outputs are soft laws which are not legally binding but there is an expectation that all countries participating in its formation may inculcate it in their tax regime.<\/span><\/p>\n

The BEPS action plan 8-10 deals with alignment of transfer pricing outcomes with value creation. It contains a section on Low Value-Adding Intra-Group services. When services are provided by one MNE group[1]<\/a> to other members of its group they are often referred to as \u201cIntra Group Services\u201d. Intra group services may include services like legal services, accounting services, central auditing services, financing advice, human resource management, IT service etc. A particular category of intra group services is often referred to as \u201cLow Value-Adding Intra-Group Services\u201d.
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Low value-adding intra-group services are services performed by one member or more than one member of an MNE group on behalf of one or more other group members which are of a supportive nature; are not part of the core business of the MNE group; do not require the use of unique and valuable intangibles and do not lead to the creation of unique and valuable intangibles; and do not involve the assumption or control of substantial or significant risk and do not give rise to the creation of significant risk.<\/span><\/p>\n

List of low-value adding intra-group services can be like Accounting and auditing, Processing and management of accounts receivable and accounts payable, Human resources activities such as: staffing, recruitment, training, employee development, remuneration services and developing and monitoring of staff health procedures, The monitoring and compilation of data relating to health safety, Information technology services (which are not part of the principal activity of the group), Internal and external communications and public relations support, Legal services, Activities with regard to tax obligations and General services of an administrative or clerical nature<\/span><\/p>\n

Chapter VII of Base Erosion Profit Shifting plan (BEPS) specifically deals with determination of transfer price in relation to such intra group services.<\/span><\/p>\n

Low Value-Adding Intra-Group Services can avail the benefits of the elective simplified approach<\/strong> as given under the BEPS action plan.<\/span><\/p>\n

As mentioned above, the Indian SHRs are in consonance with BEPS plan 8-10. However, according to the view adopted by India there are certain deviations in the definition of low value adding intra group services. Low Value Adding Intra Group Services as defined under the amended SHR means services that are performed by one or more members of a multinational enterprise group on behalf of one or more other members of the same multinational enterprise group and which, are in the nature of support services; are not part of the core business of the multinational enterprise group, i.e., such services neither constitute the profit-earning activities nor contribute to the economically significant activities of the multinational enterprise group;are not in the nature of shareholder services or duplicate services; <\/em>neither require the use of unique and valuable intangibles nor lead to the creation of unique and valuable intangibles; neither involve the assumption or control of significant risk by the service provider nor give rise to the creation of significant risk for the service provider; and do not have reliable external comparable services that can be used for determining their arm\u2019s length price<\/em>.<\/span><\/p>\n

A list of 10 services have been excluded from the applicability of this definition namely;<\/span><\/p>\n