By Ritu Shaktawat, Partner, Khaitan & Co, Mumbai, India
India’s government on 6 May amended the tax rules relating to the resolution of cross-border tax disputes under the mutual agreement procedure (MAP) in tax treaties, laying down clear guidelines on the process and timelines.
MAP is an alternate dispute resolution mechanism under tax treaties whereby competent authorities of the concerned jurisdictions attempt to resolve tax disputes, by a mutual agreement, relating to the interpretation or application of tax treaties. The goal is to resolve situations of double taxation arising as a result of the action by tax authorities of one of the jurisdictions.
India’s erstwhile MAP rules did not prescribe any timeline for the completion of the resolution process.
Under the revised rules, the competent authority shall endeavour to arrive at a mutually agreeable resolution of tax disputes within an average period of 24 months.
The statutory form for applying for MAP has also been revised to enable the applicant to detail the remedy sought in the other jurisdiction for the action which is not in accordance with the relevant treaty.
The statutory form for applying for MAP has also been revised to enable the applicant to detail the remedy sought in the other jurisdiction for the action which is not in accordance with the relevant treaty.
The revised rules also detail the process with respect to a reference received by the competent authority of India from a foreign competent authority in relation to an action taken by an Indian income tax authority.
Under the new rules, the competent authority of India must call for the relevant records and additional documents from the income tax authorities or the taxpayer, or have a discussion with them, to understand the actions taken by the income tax authorities in India or outside, that are not in accordance with the relevant tax treaty.
If a resolution is arrived at between the competent authorities, the same shall be communicated to the taxpayer in writing. Within 30 days, the taxpayer must communicate its acceptance / non-acceptance to the competent authority of India.
The taxpayer’s acceptance must be accompanied by proof of withdrawal of any pending appeals in relation to the issue(s) which were the subject matter of MAP.
The competent authority of India must communicate the taxpayer’s acceptance of the resolution to the specified senior tax authorities, who in turn must forward it to the local tax officer having jurisdiction over the case of the taxpayer in India. Within one month from the end of the month in which the local tax officer receives the notification, he must pass an order giving effect to the resolution and notify the taxpayer about the tax payable, if any.
The revision of India’s MAP process and timelines is a welcome move.
While the 24-month time period for resolution of disputes is indicative and guiding, not binding, it is expected to speed up the process.
Timely and efficient resolution of tax disputes is essential for building investor confidence.
Given the complexity of issues like income characterisation, permanent establishment determination, and income attribution, transfer pricing disputes, these changes to the process should provide multinationals an alternative for a swift and efficient resolution of tax disputes instead of protracted tax litigation and uncertain outcomes.
— Raghav Kumar Bajaj, Principal Associate, contributed to this article.
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