Global Capability Centres (GCCs) often provide various support functions to their overseas headquarters and group companies. These services may qualify as low value-adding intra-group services under the Direct Tax Code (DTC) 2025, making them eligible for the safe harbour rules. This guide analyses the low value-adding intra-group services safe harbour and its relevance for GCC support functions.
The Low Value-Adding Intra-Group Services Framework
Section 167 — Statutory Basis
Section 167(1) provides that the determination of income referred to in section 9(2) or arm's length price under section 165 or 166 shall be subject to safe harbour rules. Section 167(2) empowers the Board to make rules for safe harbour.
Section 167(3) — Definition of Safe Harbour
Section 167(3) defines "safe harbour" as circumstances in which the income-tax authorities shall accept the transfer price or income declared by the assessee.
Low Value-Adding Intra-Group Services Safe Harbour
Rule 88 — Eligible International Transactions
Rule 88 specifies that receipt of low value-adding intra-group services from one or more members of its group is an eligible international transaction for safe harbour.
Rule 86(k) — Definition of Low Value-Adding Intra-Group Services
"Low value-adding intra-group services" means services that are performed by one or more members of a multinational enterprise group on behalf of one or more other members of the same multinational enterprise group and which:
- Are in the nature of support services
- Are not part of the core business of the multinational enterprise group
- Are not in the nature of shareholder services or duplicate services
- Neither require the use of unique and valuable intangibles nor lead to the creation of unique and valuable intangibles
- Neither involve the assumption or control of significant risk by the service provider nor give rise to the creation of significant risk for the service provider
- Do not have reliable external comparable services that can be used for determining their arm's length price
Excluded Services — The definition excludes:
- Research and development services
- Manufacturing and production services
- Information technology (software development) services
- Knowledge process outsourcing services
- Business process outsourcing services
- Purchasing activities of raw materials or other materials
- Sales, marketing and distribution activities
- Financial transactions
- Extraction, exploration, or processing of natural resources
- Insurance and reinsurance
Safe Harbour Conditions — Rule 89(2)
The safe harbour for low value-adding intra-group services applies where:
- The aggregate amount of the low value adding intra-group services during the tax year, including a markup not exceeding 5% , does not exceed a sum of ₹10 crore
- The method of cost pooling, the exclusion of shareholder costs and duplicate costs from the cost pool and the reasonableness of the allocation keys used for allocation of costs to the assessee by the overseas associated enterprise, is certified by an accountant
Relevance for GCC Support Functions
Common GCC Support Functions That May Qualify
- Finance and accounting support
- Human resources support
- IT support (non-software development)
- Administrative support
- Procurement support
- Facilities management
Functions That May Not Qualify
- Software development
- IT/ITES services
- Research and development
- Business process outsourcing
- Knowledge process outsourcing
Determining Eligibility
GCCs must assess whether their support functions:
- Are in the nature of support services (not core business)
- Are not shareholder services or duplicate services
- Do not involve unique and valuable intangibles
- Do not involve significant risk
Documentation Requirements
Certification by Accountant
The method of cost pooling, the exclusion of shareholder costs and duplicate costs from the cost pool and the reasonableness of the allocation keys used for allocation of costs to the assessee by the overseas associated enterprise, must be certified by an accountant.
Section 171 — Documentation
Even with safe harbour, documentation under Section 171 must be maintained.
Practical Compliance
1. Assess Eligibility
- Determine whether the GCC's support functions qualify as low value-adding intra-group services
- Ensure the aggregate amount including markup does not exceed ₹10 crore
- Ensure the markup does not exceed 5%
2. Obtain Certification
- Obtain certification from an accountant
- Ensure certification covers cost pooling, exclusion of shareholder costs, and allocation keys
3. Exercise Option
- File Form No. 49 on or before the due date for furnishing the return of income
- Ensure the return of income is furnished on or before the date of filing Form No. 49
4. Maintain Documentation
- Even with safe harbour, documentation under Section 171 must be maintained
- Ensure the documentation is complete and accurate
Consequences of Non-Compliance
Invalid Option
If the option is declared invalid, the transfer price will be determined under the regular transfer pricing provisions.
Penalties
Non-compliance may result in:
- Penalty under Section 442 for failure to maintain documentation
- Penalty under Section 457 for failure to furnish information
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on low value-adding intra-group services safe harbour for GCCs. Our direct tax experts help GCCs understand the safe harbour conditions, exercise options, and navigate the regulatory framework. We assist in eligibility assessment, Form 49 filing, and representation before income-tax authorities.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on low value-adding intra-group services safe harbour or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex low value-adding intra-group services safe harbour framework for GCCs requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Eligibility Assessment: Evaluation of safe harbour eligibility
- Certification: Assistance with accountant certification
- Option Exercise: Assistance with Form No. 49 filing
- Representation: Representation before Transfer Pricing Officers
Contact us for expert legal guidance on your GCC safe harbour matters.