By Prabhakar KS, Shree Tax Chambers, Bengaluru, India
On 24 October, the OECD released its sixth round of Stage 1 of peer review reports on base erosion and profit shifting (BEPS) action 14, assessing India and other seven countries namely, Argentina, Chile, Colombia, Croatia, Latvia, Lithuania, and South Africa.
Action Plan 14’s key objectives are making tax dispute resolution more effective with continuous review and progress. Hence, the latest review report provides more than 230 recommendations with minimum standards, positive notes, deficiencies, and summarized statistics on the outcome of the mutual agreement process during 2016-2017 for these eight counties.
India’s mutual agreement review report
India’s mutual agreement procedure report consists of four sections that analyze India’s tax dispute resolution’s legal framework, its administrative practice, records improvements, if any, and also provides a set of recommendations to improve the deficiencies.
Major findings from the peer review are that India is meeting the minimum standard under Action Plan 14.
In 2012, India implemented an advance pricing agreement (APA) program. Subsequently, in 2014, it brought in major legislative changes to allow roll-backs of bilateral APAs for a fixed period of four years and granted such rollbacks in appropriate cases.
With respect to availability and access to MAP, the peer review found that India is not meeting the minimum standard under Action 14 where there is restricted access to MAP, such as applying it only to those cases of transfer pricing and treaty anti-abuse provisions.
With respect to resolving MAP cases, the competent authority is independent of audit and examination functions which can only be accessed through an application from the taxpayer. Further, the competent authority does not resolve MAP cases if there is no such double taxation. Further it is found that India is taking an average of 36 months which is more than the desired time frame of 24 months. Due to this inadequacy, the total MAP pending cases stands at 763, as of December 2017.
With respect to the implementation of MAP, the report positively states that India is meeting the desired minimum standard under Action 14 and did not find any such implementation-related issues.
Recommendations for India
The OECD Secretariat, in its MAP review report, made a number of recommendations for India. Its key recommendations include quickly ratifying the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) to incorporate the equivalent of Article 25(1) / 25(2) / 25(3), of the OECD Model Tax Convention wherever its treaties that currently do not contain an equivalent provision and to maintain its stated intention to include the required provision in all future tax treaties.
Continuity of roll-back of bilateral advance pricing agreements in appropriate cases is recommended as is extending access to its MAP program to all eligible cases where the requirements under the OECD Model Tax Convention met.
The Indian government should introduce clear and comprehensive MAP program guidelines and issue due notifications, rules, and processes, including the steps to be followed and strict timelines for taxpayers to comply with requests for additional information and documentation for consideration of their application.
Other requested changes include improving the continuity of access to eligible transfer pricing cases, changes to India’s policy to effectively allow access to issues involving the application of the domestic anti-abuse provisions, and provision of tax treaty continuity of information and documentation requirements. The report states that when India’s MAP guidance is finalized should be made publically available.
The progress of the Stage 1 recommendations will be reviewed in Stage 2.
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