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With reference to the subject of transfer pricing, a safe
harbor (SH) refers to a provision wherein, the arm’s length price adapted by
the taxpayer will be accepted as being at arm’s length by the income tax
authorities.
The basic objectives of SH rules are as follows:
- simplifying compliance for eligible taxpayers in determining arm's length conditions for controlled transactions.
- providing assurance to a category of taxpayers that the price charged or received on controlled transactions will be accepted by the tax authorities without further review;
- relieving the tax administration from the task of conducting further examination and audits of such taxpayers with respect to their transfer pricing.
SH means the circumstances in which the income tax
authorities shall accept the transfer price as declared by the assesse. The
Board has been given the powers to make rules for SH. So far no such rules have
been notified by the Board.
SH is a comfort mechanism meant to give compliance relief, administrative
simplicity and certainty for tax payers and tax administrators. The concept of
SH is that the results declared by a tax-payer who fulfils certain prescribed
conditions are accepted without scrutiny.
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