PM sets up panel to review taxation of development centres, IT

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In yet another move to provide clarity on taxation issues, Prime Minister Manmohan Singh on Monday set up a committee to look into such matters pertaining to IT sector and research and development related activities.

The panel, headed by former Central Board of Direct Taxes (CBDT) chairman N Rangachary, will be in addition to the one set up to review the General Anti-Avoidance Rules (GAAR) provisions to address the concerns of foreign investors.

The new four-member committee will hold consultations with stakeholders and related government departments to finalise the approach to taxation of Development Centres and suggest appropriate measures.

"It was felt that there is still a need to address some other issues relating to the taxation of the IT 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 PMO statement said.

Safe Harbour principles are international disclosure practices to check litigations in transfer pricing -- an accounting mechanism undertaken by MNCs to reduce tax liabilities.

"Safe Harbour provisions have the advantage of being a good risk mitigation measure, provide certainty to the tax payer," the statement said.

Earlier this month, the Prime Minister had set-up a panel headed by ICRIER chief and taxation expert Parthasarathi Shome to bring 'greater clarity' and prepare a roadmap for GAAR by September 30 for its implementation.

Rangachary is also a member of the GAAR panel.