The Banking and Strategy Initiative

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Tax treaties, domestic tax breaks and the continuing outsourcing | TBD

[ET]India has settled a dispute over taxing profits of captive IT services units and research arms of US firms, bolstering New Delhi’s position as a preferred destination of such investments.

The negotiated settlement between the tax authorities of the countries allows India to tax 17.5% of the profits earned by Indian subsidiaries of the US companies in 2004-05. India had sought to tax 25-30% of the profits.

“This is a significant development,” said an official with the income-tax department. The government could gain about Rs 400-500 crore in revenues, he said, requesting anonymity.

Though the transfer pricing (TP) settlement is binding only for transactions in 2004-05, this would serve as a reference point in future disputes. TP refers to the valuation of contributions by way of assets, services, and funds changing hands within an organisation. TP rules check an MNC from shifting profits out of India.

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This entry was posted on May 18, 2010 by in Financial Markets and tagged , , , .

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