India and US tax officials have resolved 108 mutual agreement procedure (MAP) tax disputes and have reached agreement on the their first bilateral advance pricing agreement (APA), India’s Central Board of Direct Taxes (CBDT) announced today.
The MAP cases, worth about Rs. 5,000 crore (USD 737 million), were resolved during an October negotiation in Washington, the CBDT said. Some of the cases had been pending since 1999.
Transfer pricing issues addressed by the two countries concerned royalty payments, management fees, cost contribution arrangements, engineering design services, contract R&D services, investment advisory services, marketing support services, software development services, and information technology enabled services — including both business process outsourcing service and knowledge process outsourcing services.
Treaty interpretation issues included whether entities had permanent establishments (PEs) in India and the profit attribution to such PEs.
The terms of the bilateral APA were also agreed to during the October meeting. The CBDT said the case took only 8 months to resolve.
The resolution the MAP cases and India’s first bilateral APA with the US are encouraging signs for US/India relations in taxation.
In early 2013, just after India launched its APA program, the US competent authority publicly declared it would not negotiate bilateral APAs with India, claiming that the Indian side was not engaging in principled negotiation in tax matters.
Following successful negotiations under a 2015 framework to resolve transfer pricing disputes, though, the US competent authority changed course, agreeing in February 2016 to begin bilateral APA negotiations with India.
At the time, the US said it would accept APA applications “covering information technology-enabled services, software development services, or other issues for whose resolution transfer pricing principles are relevant.”
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