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Ext. PublicationTransfer Pricing Impacts in India: Safe Harbor Rules and Markups | Podcast
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In this episode, Josh Finfrock discusses India’s newly introduced 15.5% transfer pricing safe harbor and what it means for U.S. multinational companies operating in the region. He breaks down how the safe harbor consolidates prior rules, simplifies compliance for larger Indian subsidiaries and aligns with common audit outcomes. This episode also explores key considerations for U.S. companies as they evaluate potential risks, benefits and documentation requirements amid evolving transfer pricing expectations.
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Detailed Description of Transfer Pricing Impacts in India: Safe Harbor Rules and Markups
00:00:00
Josh: Hi. This is Josh Finfrock. I lead the transfer pricing practice with Weaver. I’m here to talk about another transfer pricing topic this week.
00:00:07
Josh: India is a pretty common trading partner but also commonly serves as part of many U.S. multinational companies. So, transfer pricing impacts in India have a pretty quick flow-through in terms of their impact on how U.S. multinationals are planning.
00:00:23
Josh: The new India budget has come out and introduced a new safe harbor related to the markups on certain types of services. There’s a pretty broad spectrum of what gets included in some of these things, but a safe harbor at 15.5% is going to be consolidating a variety of types of services, but also places where safe harbors existed in the past at differing levels.
00:00:52
Josh: I think that simplification is very helpful. The scope of this safe harbor is available to much larger Indian subsidiary companies in terms of their revenue size, so that’s also really helpful.
00:01:05
Josh: One thing to keep in mind is that it’s not inherently safe-harbor position from a U.S. transfer pricing perspective. But most U.S. multinationals that have experienced an India transfer pricing audit find the notion of having a safe harbor in place in India to be a pretty good option.
00:01:27
Josh: And I think it’s interesting to see as well because the informal realities of a lot of these markups happening in India was already pretty close to the 15.5% — at 15% — and the push from a lot of India TP audits would push you towards that 15%. So, with that being the case, in some ways this is already a position that a lot of companies are very near to taking anyway, and the safe harbor just gives you a little bit more comfort from an India perspective.
00:01:56
Josh: There is the added aspect of locking that in for a period of five years into the future. What does “locking that in” mean? Well, it means you’re going to choose to do this today. That’s signaling to the Indian government that you’re going to do that for five more years, right? So, I think that’s something to be mindful of.
00:02:14
Josh: What do U.S. companies need to do?
I think U.S. companies, if they’re not already taking advantage of this, or aren’t using arms-length transfer pricing in India for their subsidiaries where they have what would be called IT services or IT-enabled services — which, in a lot of ways, captures almost any of these outsourcing-type capacity functions that many businesses have offices in India doing.
00:02:38
Josh: So, we’re helping companies analyze what the potential risk could be on the U.S. side of moving forward with something like this, with the offset of what the benefit is on the Indian side.
And then, of course, the documentation to prove all these things out is still important.
00:02:53
Josh: So, if this is a topic of interest, we’re happy to talk further. And if you are interested in more transfer pricing topics like this, follow me on LinkedIn.
Thanks. Bye.
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