New Delhi: IT industry body Nasscom on 10 July lauded Supreme Court judgement on Morgan Stanley case, saying it was a very positive ruling for the BPO industry.
“The judgement and overall principles affirmed by the court will provide reassurance to multinational companies with regard to operations of their captive BPOs in India,” Nasscom said in a statement here.
It has also cleared unnecessary confusion on some of the taxation issues, it said.
The Supreme Court on 9 July held that captive BPOs of multinational companies are not liable to be taxed in the country if they are billing the subsidiaries on an “arms length” basis or at market price.
Nasscom said the court has clearly brought out that in determination of ‘arms length´ compensation for the activities of the Indian captive company, the function and risk assumed must be duly considered.
Nasscom has asked the Ministry of Finance to consider creating an Advanced Pricing (APA) mechanism procedure as it would allow taxpayers to disclose all relevant facts to tax authorities and obtain a binding rule on the tax consequences.
The mechanism would ensure that arms length compensation is determined in advance, Nasscom said.