Prime minister Manmohan Singh on Monday set up a panel to review taxation of software development centres and related issues, a government statement said.
The panel, headed by former Central Board of Direct Taxes (CBDT) chairman N Rangachary, has been set up barely a fortnight after the government formed a panel to clarify to review the General Anti-Avoidance Rules (GAAR) under economist Parthasarathi Shome. GAAR or General Anti-Avoidance Rule is aimed at preventing deals or incomes that are structured only to avoid paying taxes.
“There is still a need to address some other issues relating to the taxation of the information technology sector such as the approach to taxation of development centres, tax treatment of ‘onsite services’ of domestic software firms, and also the issue of finalising the Safe Harbour provisions announced in Budget 2010,” a statement issued by the Prime Minister's Office (PMO) said.
Safe Harbour principles are international disclosure practices to check litigations in transfer pricing. Differing tax rates in different tax jurisdictions can create perverse incentives for corporations to shift income among countries to evade taxes.
Nasscom, an IT industry body, welcomed the setting up of the panel.