Safe Harbour Rules
Safe Harbour Rules – Recent Amendment to Financial transaction and Operating Income / Expense definition
The CBDT issued a notification on 19 December 2023 amending the existing safeharbour rules applicable from FY 2023-24. The alert captures in detail the amendments to the existing Safe Harbour Rules which include:
- For foreign currency denominated loans, transition from LIBOR to AlternateReferenceRate (ARR). Currently 6 prominent ARR have be provided for the respective currency viz., SOFR (USD), EURIBOR (EUR), SONIA (GBP), TORF (Yen), BBSW (AUD) and SORA (SGD)
- Extending the coverage of Safe Harbour to all associatedenterprise, which is currently eligible for loan advanced to wholly owned subsidiary.
- Removal of ceiling for loans advanced denominated in foreign currency. Introduction of slabs for the spread over the ARR based on the quantum loans advanced i.e., upto INR 250 crores and greater than INR 250 crs.
- Credit rating defined to mean ratings obtained from an agency approved by SEBI and accredited by RBI. Further in case of multiple credit ratings, the lowest to be considered for the purpose of Safe Harbour rules.
- For loan advanced to associated enterprises to be eligible under Safe Harbour, existing condition on sourcing of loan in INR has been removed.
- Definition of operating income and operating expense amended w.r.t profit / loss on transfer of assets. As per the amendment, where depreciation on the transferred asset is included in operating expense, the profit or loss arising on account of such transfer will also be treated as operating in nature.
With these welcome amendments, the scope of covered transaction under the safe harbour has increased and businesses can consider opting under the Safe Harbour route to effectively and efficiently manage their transferpricing disputeresolution.