Eleven Percent Tax Rate Suggested for Software and BPO Services

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Nov. 18 – Accounting consultancy firm, Deloitte has suggested in a white paper that overseas software and BPO services companies should be allowed to pay tax on a presumed rate of profit on inter-company transactions.

Deloitte advises an 11 to 13 percent rate over costs for both software and BPO services. If adopted, the introduction of such safe harbor rules would be expected to improve the foreign investment climate in the information technology and IT-enabled services sector such as BPOs by providing clarity on tax liability and simplicity in tax administration.

A ‘safe harbor’ would mean circumstances under which Indian revenue authorities would accept the transfer pricing declared by the taxpayer. Transfer pricing provisions in general require income arising from an international transaction between two or more related organizations to be calculated at an arm’s length price or at a price comparable to similar transactions between unrelated parties.

Shonto Ghosh, senior director, Deloitte, commented: “India has lost foreign investment to countries such as Sri Lanka, and the Philippines. Safe harbor provisions will create a conducive climate for foreign investments by reducing the administrative burden.”

India’s 2009-10 Budget had made an announcement in this regard and the Central Board of Direct Taxes is working on the rules expected to be announced soon.