Evolution Of Safe Harbour Rules In India

1. FOREWORD

In 1991, India opened its economy to the world which led to an influx of Foreign Direct Investment. This globalization of the Indian economy resulted in expansion of business cross border which in turn, led to erosion of India's tax base as profits were being shifted to tax haven countries. The law at the time, as envisaged under section 92 of the Income Tax Act, 1961 ("Act"), enabled the Revenue to attribute reasonable profits to a resident transacting with a non-resident, owing to their close connection. However, the erstwhile law proved inadequate in dealing with the growing concerns regarding manipulation of prices paid or charged in these intra group cross border transactions. This necessitated introduction of a statutory framework for computation of reasonable, fair and equitable profits and tax in India with respect to these intra group transactions.