There has been a manifold increase in tax disputes in the past few decades, especially in cross-border taxation matters. It needs to be appreciated that these cross-border transactions, including incoming foreign investments, are highly conducive and essential for the overall economic growth of the country. Realising the importance of resolving international tax issues emanating from these transactions in a time bound and efficient manner, a globally acceptable alternate dispute resolution mechanism prevalent in the global taxation system was suggested under the relevant Double Taxation Avoidance Agreements (DTAAs).
Thus,
an alternate dispute resolution (ADR) mechanism in the form of MAP has been
provided for under the respective DTAAs entered between various countries and
it is centred around a bilateral negotiation process between the tax
authorities of two countries.
What is Mutual Agreement Procedure (MAP)
Mutual Agreement Procedure (MAP) is meant for resolving disputes usually
arising on account of double taxation or taxation that violates the trade
agreement between two countries. In other words, the Mutual Agreement Procedure
is an alternative dispute resolution process under the tax treaties, wherein
the competent authorities of two countries enter into the discussion to resolve
the tax-related disputes.
MAP
is an alternate dispute resolution (ADR) mechanism, facilitating discussions
and negotiations between treaty partners to reach an amicable solution that is
acceptable to both sides, putting a conclusive end to the issue at hand.
Therefore, the main feature of a MAP proceeding is that it is a closed door
process between the tax authorities of two countries, who work to find a
resolution that is acceptable to both sides, rather than undergoing a harsh
litigious process. The negotiation takes place between Competent Authorities
(“CAs”) of the involved countries, without any formal participation from
taxpayers in either of the countries.
§
The mutual agreement procedure (MAP) is an alternative available to
taxpayers for resolving disputes giving rise to double taxation whether
juridical or economic in nature.
§
MAP is an out-of-court procedure independent of any
domestic law remedies. It aims to eliminate the double taxation of taxpayers.
§
The
agreement for avoidance of double taxation between the countries would give
authorization for assistance of Competent Authorities in the respective
jurisdiction under MAP. In the context of OECD Model Convention for the
Avoidance of Double Taxation, Article 25 provide for assistance of Competent
Authorities under MAP.
Scope of MAP
The issues that can be resolved
under a Mutual Agreement Procedure include both economic and judicial matters.
Issues such as Transfer Pricing Adjustments, Permanent Establishments,
Classification of Income, Residence of the Taxpayer and various other matters
can be determined by way of this procedure. The ambit of MAP is also inclusive
of interpretation and application of the Convention and includes resolution of
issues arising out of double taxation which is not covered by the DTAA.
Some of the common causes referred
to under MAP are :
§ Existence of Permanent
Establishment (PE).
§ Attribution of income, expenses,
deductions, credit, etc., to PE.
§ Characterization of income-for
example ‘business profits’.
§ Common interpretation of terms.
§ Transfer pricing difficulties
arising under articles dealing with associated enterprise, royalties and fees
for technical services.
§ Advance pricing arrangements.
§ Difficulties arising from the
change of domestic law of the contracting countries.
Article 25 sets out three different
areas where mutual agreement procedures are generally used. The first area
includes instances of “taxation not in accordance with the provisions of the
Convention” and is covered in paragraphs 1 and 2 of the Article. Procedures in
this area are typically initiated by the taxpayer. The other two areas, which
do not necessarily involve the taxpayer, are dealt with in paragraph 3 and
involve questions of “interpretation or application of the Convention” and “the
elimination of double taxation in cases not otherwise provided for in the
Convention”.
Paragraph 10 of the Commentary on
Article 25 makes clear that Article 25 is intended to be used by competent
authorities in resolving not only problems of juridical double taxation but
also those of economic double taxation arising from transfer pricing adjustments
made pursuant to paragraph 1 of Article 9 (Article 9 – Associated enterprises).
Juridical Double Taxation
When source rules overlap, double
taxation may arise i.e. tax is imposed by two or more countries as per their
domestic laws in respect of the same transaction, income arises or is deemed to
arise in their respective jurisdictions. This is known as “juridical double
taxation”.
In other words, Same income gets
taxed twice in the hands of the same entity in two different countries.
Economic Double Taxation
[such as in the case of transfer
pricing disputes]
Same income gets taxed in the hands
of two separate entities in two different countries even though both these
entities are associated enterprises, i.e. they belong to the same group.
In other words, ‘Economic double
taxation’ happens when the same transaction, item of income or capital is taxed
in two or more states but in hands of different person.
What are the key benefits of
pursuing MAP?
The main benefit of pursuing MAP is
elimination of double taxation (either juridical or economic). It is very rare
that a case under MAP is not resolved.
§ Also, cases involving certain
jurisdictions (US, UK and Denmark), the Indian authorities have entered into an
agreement under which the taxpayer can choose to provide a bank guarantee for
the outstanding tax demand. In such cases, the tax demand would not be pursued
by the tax authorities until disposal of the MAP application.
§ The MAP resolution, once accepted,
eliminates the need for protracted litigation.
Need for Mutual Agreement Procedure
(MAP)
§ Double Taxation Avoidance
Agreements (‘tax treaties’) are available for capturing and curtailing
juridical double taxation.
§ Tax treaties generally do not cover
instances of economic double taxation.
§ MAP provides relief in cases of
economic double taxation.
§ MAP also provides relief in cases
where automatic relief, such as tax credits, tax exemption, etc. are not
available.
What kind of issues can be taken
for resolution under MAP?
Generally, the issues giving rise
to double taxation (either juridical or economic) are submitted by the
taxpayers for resolution under MAP. Some of the instances giving rise to double
taxation are:
§
Adjustment
arising from Transfer Pricing assessment
§
Issues
relating to existence of Permanent Establishment
§
Characterisation
of income
§
Attribution
of profits to Permanent Establishment
Mutual Agreement Procedure (MAP) in
India
In the Indian context the competent
authority is the authorised representative of the Ministry of Finance
(Department of Revenue). Indian domestic law allows Indian Government to lay
down procedure for MAP proceeding under section 295 (2)(h) of the Indian Income
tax Act, 1961. India has a large network of tax treaties and has signed
bilateral tax treaties with more than 90 countries. These DTAAs, inter alia,
provide rules and mechanisms for allocation of taxing rights among treaty
partners. Most of these treaties contain a separate Article on MAP, inspired by
the provisions of Article 25 of the United Nations Model Convention and OECD
Model Tax Convention on Income and on Capital, which mandate an alternate
dispute resolution mechanism in the form of MAP clause in tax treaties. A
taxpayer derives legal right to apply for MAP proceedings based on the Article
on MAP in the respective tax treaty entered into by India with another country,
read with section 90 or section 90A of the Income Tax Act. To systematise the
process, the governments of the respective countries can develop appropriate
procedures, methods and techniques for implementation of MAP in their
respective countries. As per the MAP article in the DTAAs entered into by
India, MAP proceedings can be invoked under the following circumstances:
(a)
Where
taxation is not in accordance with the provisions of the DTAA eg. where it
involves the question of interpretation or application of the DTAA.
(b)
For
elimination of double taxation in case not otherwise provided for in the DTAA.
Practical difficulties experienced
under MAP in India
MAP process suffers from many
shortcomings :
§ Frustration of purpose by time
limits - Though MAP is great ADR mechanism, yet time-limits for settlement
generally come in taxpayer’s way of making it a desirable process for them.
There are ‘no fixed time-limits’ for arriving at settlement in MAP. Also by the
time dispute is resolved, it becomes unimplementable for many reasons, for
example, if it is in conflict with the domestic tax laws, then the whole
purpose of MAP process get frustrated.
§ Joint Endeavour being a
bureaucratic process - In the whole process of consultation between CAs of
contracting States, the taxpayer or his/her representative cannot be present;
as CAs’ deliberations are confidential. It is a Government to Government process
with no direct taxpayers involvement.
Additionally, there are other
problems such as repetitive procedures for subsequent years and MAP resolution
limited to the determination of principal issues leaving income computation to
tax officers. Also issues resolved under MAP are sometimes contradictory to
subsequent decision of the Court.
Recommendations proposed by the
OECD
MAP is surely a great ADR mechanism
but because of many difficulties as are mentioned above, it has not gained much
popularity and has not succeeded in it is objective. If more and more Indian
taxpayers resort to MAP, it is likely to happen that the concerned Governments
would refine procedure to make it more easy to avail. OECD has come up with
recommendations for efficiency overhaul of MAP they include :-
(i)
Arbitration of unresolved issues in
MAP.
(ii) Resolving time limitation issues.
(iii)
Specifying circumstances where MAP is denied.
(iv)
Consensus on suspension of collection of tax during MAP process.
(v) Specifying circumstances where MAP is
applicable-situations of corresponding adjustments.
(vi)
Harmonizing domestic law and MAP to allow MAP to operate to the full extent.
Also, making process of MAP more
transparent in the interests of natural justice and making settlement under
reasonable time-limits would make MAP process more feasible to Indian
taxpayers.
Discretion of Competent Authorities
Mutual Agreement Procedure (MAP) provides
a great degree of latitude to the contracting States. A contracting State has
the authority to decide whether a claim presented to it is justified to be
presented to another State. The revenue authorities also may refuse to consider
the application for MAP on many specific situations, viz.,
§ Sufficient information not being
disclosed by the taxpayer.
§ If clear contravention of domestic
law is involved.
§ Application’s time-limit has
lapsed.
§ Taxpayer is guilty of tax evasion
or fraud.
How Mutual Agreement Procedure (MAP) operates
(a)
Article
25(4) authorizes the CAs to deal with each other directly, either in writing or
orally, without the usual restrictions on intergovernmental communications
§ Article 26 rules on confidentially
apply
(b)
The
CAs may also develop procedures to implement the MAP, e.g., the Mutual
Agreement on how treaty arbitration under Article 25(5) is to be carried out.
(see Commentary, paragraph 24 for details)
Typical Mutual Agreement Procedure
(MAP) cases
(i)
Taxpayer-initiated
cases
MAP is initiated at the request of
the taxpayer whenever the dispute arises between: Competent authority of a
contracting state and a taxpayer resident of other contracting state.
§ Article 7 allocation of profit
disputes
§ Existence of PE
§ Dual residence
Requirements for Taxpayer Initiated MAP
(a)
“Resident”
of a State believes that he is not being taxed “in accordance with” the treaty
§ Residence determined under Article
4 rules
§ Tax need not be already assessed
(“will result”)
(b) Must present case establishing inappropriate taxation to the CA of state of residence within three years of “notification”
(ii) Competent Authorities (CA) initiated
cases
§ Common interpretation of treaty
term
§ Nonetheless, the CAs are under the
general international law obligation to carry out the treaty in good faith
(“pacta sunt servanda”) and to use every effort to arrive at a solution
§ As discussed below, the inclusion
of a mandatory arbitration clause in the treaty will help to ensure a resolution
of the case
(iii) Other double tax cases
§ Third country resident with PE in
both States
Who can apply for assistance of
Competent Authorities under MAP?
The taxpayer of the country having
to bear the incidence of double taxation can apply for assistance of Competent
Authorities under MAP to resolve the issue of such double taxation.
For Example :
ABC Co Ltd is an Indian subsidiary
of ABC Inc in US. ABC Co Ltd provides contract software development services to
ABC Inc and is compensated on a ‘cost plus’ basis for the contractual services.
During a Financial Year the international transaction of ABC Co Ltd were
scrutinized by the Transfer Pricing Officer in India and an upward adjustment
to income was made. The upward adjustment to the income, due to higher transfer
price, in the hands of ABC Co Ltd would give rise to double taxation to ABC
Inc., US. In such cases, under the India - US Tax Convention, ABC Inc can apply
for assistance of Competent Authorities under MAP to resolve such incidence of
double taxation.
Responsibility of MAP applicant to
make True and Complete Disclosure
As per CBDT MAP Guidance Vide F No.
500/09/2016-APA-I, dated 10.06.2022, Part E has been added to the MAP Guidance
to lay down the following responsibilities of the MAP Applicant:
§ Making true disclosure - provide
all facts that can materially affect the negotiation process, for instance:
disclose adjustments made in the other jurisdiction
§ Provide up-to-date information -
Applicant must update CAs on all material events in connection with the MAP
application
Making a MAP application in India
§ The taxpayer shall make an
application before the CA of their country of residence to invoke MAP
§ Cas of such country are expected to
expeditiously intimate the CAs of the treaty partner
§ Cas of such country shall intimate
the CA of the relevant treaty partner about their acceptance or rejection of
MAP application and invite their views
§ Once the CAs of the respective
countries have exchanged their views and arrived at a common understanding, the
relevant CA shall inform the taxpayer of their decision
Formal process once a MAP
application is accepted
§ Competent Authorities (CAs) shall
exchange their views through position papers
§ Competent Authorities (CAs) of both
the jurisdictions convene meetings (without the taxpayer’s presence) in person
or remotely and try to resolve the dispute and formalise a mutual agreement
§ The taxpayer has an option to -
accept the MAP resolution reached by the Competent Authorities (CAs), or -
decline it, and continue litigating as per the remedies available under the
domestic law
As per MAP Guidance issued by CBDT,
once the CAs of both the jurisdictions successfully resolve a MAP case and
formalise a mutual agreement, the concerned CA would intimate the taxpayer who
applied for a MAP resolution. While the acceptance or rejection of the MAP
resolution is the prerogative of the taxpayer, irrespective of whether the
taxpayer accepts the MAP proposal or not, the MAP application shall be deemed
to have been considered as “resolved” by the CAs of both the jurisdictions.
Steps involved in the MAP
application process
§ Brief facts and background of the
case must be summarized
§ Contentions of Indian Revenue must
be summarized in the application
§ The net tax and interest impact
only by virtue of transfer pricing adjustment is computed
§ Take note of transactions only
relating to one country (in one application), e.g. USA, UK, etc.
§ All documents including tax
returns, TP study, notices, submissions, orders, etc. must be furnished.
§ Relevant judicial precedence and
their applicability to taxpayer’s case must be demonstrated.
Application or reference to invoke
Mutual Agreement Procedure to the competent authority of India
If the action of the tax
authorities of any other country is not as per the terms of the agreement
entered into between India and such other country, then, the assessee (i.e.,
resident of India), can make an application to the competent authority in India
in Form No. 34F. On the other hand, the
reference can also be made by the Competent Authority of any other county
against the action taken by any Income-tax authority in India, provided such
action is against the terms of the agreement.
Calling for relevant records and
discussion
On acceptance of an application or
reference, the Competent Authority in India can demand relevant records and
additional documents from the income-tax authority or the assessee/authorized
representative. In order to understand the breach of terms of the agreement,
the Competent Authority can also hold a discussion with the authorities or
assessee/authorized representative.
Mutual agreeable resolution
In accordance with the terms of the
agreement between India and the other country, the Competent Authority in India
shall make an effort to arrive at the mutually agreeable resolution within an
average time period of 24 months.
Acceptance or non-acceptance of
resolution by the assessee
On receipt of communication of
mutually agreeable resolution, the assessee is required to communicate his
acceptance or non-acceptance of the resolution within a period of 30 days.
Procedure in case of acceptance of
resolution by the assessee
§
If
the assessee accepts the resolution, then, he is required to withdraw the
appeal pending on the subject matter and submit the proof of withdrawal of the
appeal.
§
The
competent authority in India shall communicate the acceptance of the resolution
to the appropriate authorities like Principal Chief Commissioner/the Chief
Commissioner/the Principal Director General/the Director-General.
§
The
appropriate authority shall in-turn, communicate the acceptance of the
resolution to the Assessing Officer.
Procedure for the Assessing Officer
on acceptance of the resolution
§
On
receiving the communication of acceptance, the Assessing Officer is required to
pass an order in writing. Such order is to be passed within a period of one
month from the end of the month in which communication of acceptance is
received by the Assessing Officer.
§
The
order passed the Assessing Officer shall be sent to the Competent Authority in
India and also to the assessee. Along with the order, the Assessing Officer
shall intimate the tax payable by the assessee.
§
The
assessee is required to pay the requisite tax (as intimated by the Assessing
Officer) and submit the proof of payment of tax to the Assessing Officer.
§
On
receipt of proof of payment, the Assessing Officer shall proceed to withdraw
the pending appeal filed by either the Assessing Officer/the Principal
Commissioner/Commissioner/any other income-tax authority in the matter.
Text of Rule 44G of the Income Tax
Rules, 1962
[1][PART IX-C
MUTUAL AGREEMENT PROCEDURE
[2][Application seeking to give effect to the
terms of any agreement under clause (h) of sub-section (2) of section 295 and
the procedure for giving effect to the decision under the Agreement.
44G.
(1) Where an assessee, being a resident of India, is aggrieved by any action of
the tax authorities of any country or specified territory outside India for the
reason that, according to him, such action is not in accordance with the terms
of agreement with such other country or specified territory, he may make an
application to the Competent Authority in India seeking to invoke the mutual
agreement procedure, if provided in such agreement, in Form No. 34F.
(2)
Where a reference has been received from the competent authority of any country
or specified territory outside India under any agreement with that country or
specified territory with regard to any action taken by any income-tax authority
in India or by the tax authorities of such country or specified territory, the
Competent Authority in India shall convey his acceptance or otherwise for
taking up the reference under mutual agreement procedure to the competent
authority of the other country or specified territory.
(3)
The Competent Authority in India shall, with regard to the issues contained in
Form No. 34F or in the reference from the competent authority of a country or
specified territory outside India, call for the relevant records and additional
document from the income-tax authorities or the assessee or his authorised
representative in India, or have a discussion with such authorities or assessee
or representative, to understand the actions taken by the income-tax
authorities in India or outside that are not in accordance with the terms of
the agreements between India and the other country or specified territory.
(4)
The Competent Authority in India shall endeavour to arrive at a mutually
agreeable resolution of the tax disputes, arising from such actions of the
income-tax authorities, in accordance with the agreement between India and the
other country or specified territory within an average time period of
twenty-four months.
(5)
In case the mutual agreement procedure is invoked on account of action taken by
any income-tax authority in India, the resolution arrived at under sub-rule (4)
in a previous year shall not result in decreasing the income or increasing the
loss, as the case may be, of the assessee in India, as declared by him in the
return of income of the said year.
(6)
If a resolution is arrived at under sub-rule (4) between the Competent
Authority in India and that of the other country or specified territory, the
same shall be communicated in writing to the assessee.
(7)
The assessee shall communicate his acceptance or non-acceptance of the
resolution in writing to the Competent Authority in India within thirty days of
receipt of the communication under sub-rule (6).
(8)
The assessee's acceptance of the resolution shall be accompanied by proof of
withdrawal of appeal, if any, pending on the issues that were the subject
matter of the resolution arrived at under sub-rule (4).
(9)
On receipt of acceptance under sub-rule (7), the Competent Authority in India
shall communicate the resolution arrived at under sub-rule (4) and the
acceptance by the assessee alongwith proof of withdrawal of appeal, if any,
submitted by the assessee under sub-rule (8), to the Principal Chief
Commissioner or the Chief Commissioner or the Principal Director General or
Director General, as the case may be, who in turn shall forward it to the
Assessing Officer.
(10)
On receipt of communication under sub-rule (9), the Assessing Officer shall
give effect to the resolution arrived at under sub-rule (4), by an order in
writing, within one month from the end of the month in which the communication
was received by him and intimate the assessee about the tax payable determined
by him, if any.
(11)
The assessee shall pay the tax as determined under sub-rule (10) within the
time allowed by the Assessing Officer and shall submit the proof of payment of
taxes to the Assessing officer who shall then proceed to withdraw the pending
appeal, if any, pertaining to subject matter of the resolution under sub-rule
(4), which were filed by the Assessing Officer or the Principal Commissioner or
Commissioner or any other income-tax authority
(12)
A copy of the order under sub-rule (10), shall be sent to the Competent
Authority in India and to the assessee.
(13)
The amount of tax, interest or penalty already determined shall be adjusted in
accordance with the resolution arrived at under sub-rule (4) and in the manner
provided under the Act or the rules made thereunder to the extent that such
manner is not contrary to the resolution arrived at.
Explanation.
- For the purposes of this rule, the “Competent Authority in India”' shall mean
an officer authorised by the Central Government for the purposes of discharging
the functions as such.]
KEY NOTE
1. Inserted by the Income Tax (Second Amendment)
Rules, 2003, with effect from 06.02.2003 [as corrected by Notification No.
39/2003 (F. No. 480/3/2002-FTD), dated 26.02.2003]. See also Instruction No. 3
of 2004, dated 19.03.2004. [India-UK and Instruction No. 10/2007, dated 23.10.2007
(India-US)].
2.
Substituted by the Income-tax (Eighth
Amendment) Rules, 2020, with effect from 06.05.2020. Prior to its Substitution,
rule 44G as inserted by the Income-tax (Second Amendment) Rules, 2003, with
effect from 06.02.2003, read as under:
“44G.
Application for giving effect to the terms of any agreement under clause (h) of
sub-section (2) of section 295. - Where a resident assessee is aggrieved by any
action of the tax authorities of any country outside India for the reason that,
according to him, such action is not in accordance with the terms of agreement
with such other country outside India, he may make an application to the
Competent Authority in India seeking to invoke the mutual agreement procedure,
if any, provided therein, in terms of Form No. 34F.”
[1][FORM
NO. 34F
[See rule 44-G]
Form of application for an
assessee, resident in India, seeking to invoke mutual agreement procedure
provided for in agreements with other countries or specified territories
To
The Competent Authority
in India
Foreign Tax and Tax
Research Division,
Central Board of Direct
Taxes, Department of Revenue,
Ministry of Finance,
New Delhi
Madam/Sir,
Whereas
the applicant is aggrieved by the action of the tax authority of
----------------------------------------------------------- ---- (name of the
country or specified territory) for the reasons given hereunder. The matter may
kindly be taken up with the Competent Authority of
----------------------------------------- (name of the country or specified
territory) under Article --------------- of the
-----------------------------------------------------------------------
(specify the agreement) between India and
---------------------------------------- (name of the country or specified
territory). The relevant details in this regard are as under:
(a) Name of the
Applicant –
(b) Permanent Account
No. /Aadhar –
(c) Circle /Ward –
(d) Assessment Year(s) –
(e) Previous Year(s) –
(f) Office Address
& Telephone No. –
(g) Residential Address
& Telephone No. (If applicable) –
(h) Status –
(i) Name and Designation of Tax Authority in the
other country or specified territory (Treaty Partner) –
(j) Date of the notice or order giving rise to the
action –
(k) Is the order/action
of the Tax Authority of the Treaty Partner not in accordance with the
agreement? If so, the reasons thereof - (complete details may be provided in a
separate sheet, if required)
(l) Details of remedy
sought in the other country or specified territory, if any, with documentary
evidence –
2.
The following documents in support of the claim are enclosed: — (I) Copy of
notice or order giving rise to action (II) Detailed reasons provided in respect
of (k), if any (III) Documents in respect of (l), if any (IV) (Any other
document)
Verification
I,
_______________, son/daughter/wife of Shri ____________, solemnly declare that
to the best of my knowledge and belief, the information given in this
application and the annexures and statements accompanying it is correct and
complete and particulars shown therein are truly stated and relate to the
previous year(s) relevant to the assessment year.
2.
I also declare that to the best of my knowledge; I have not concealed any fact
or information which could be relevant for deciding my application.
3.
I further declare that I am making this application in my capacity
as.............. (designation) and that I am holding PAN/ Aadhar _____ and I am
competent to make this application and verify it.
Date
----------
Place
---------
(Signature)]
KEY NOTE
1. Form No. 34F Substituted by Income-tax
(Eighth Amendment) Rules, 2020, with effect from 06.05.2020.
Circumstances
where India can deny access to MAP – Interplay of MAP with Vivad se Vishwas
Scheme (“VsV”) explained
§ Where resident taxpayer opts for
VsV for transfer pricing dispute, which is accepted by the IRA and the CA of
other country accepts MAP application from its taxpayer (i.e. NR AE) on same
issue.
§
IRA
shall allow access to MAP but charge taxes as per VsV. IRA will request the CA
of the other country to provide correlative relief.
§
CA
of India shall not provide access to MAP to a non-resident taxpayer who has
opted for the VsV scheme on the same issue because the applicant has given up
its legal right to access MAP under VsV.
Earlier
IRA had denied access to MAP in such cases. However, the MAP Peer Review Report
on India (Stage 2), issued by the OECD under BEPS Action 14, had stated that
India’s position of denying MAP access to matters covered under VsV prevented
correlative relief in the other country. Therefore, the Updated MAP Guidance
was intended to meet this requirement.
Outcome
of MAP process
§
The
Assessing Officer gives effect of the decision of the MAP, after receiving
instructions from the CCIT / DGIT (within 90 days of receiving instructions)
§
If
taxpayer is aggrieved by decision of the Competent Authority, he may reject the
decision and go ahead with the remedies under the domestic law.
§
If
remedies are not granted by the domestic law, the taxpayer may apply to the
Competent Authorities again for subsequent years.
§
Decision
of a Competent Authority is generally case specific and not a precedent for the
taxpayer for subsequent years or other taxpayers on same issues.
Limitation
Period for preferring MAP
generally three years
The
case has to be presented to the competent authority of the country where the
taxpayer is resident within three years from the (first) time the person is
notified (for example by way of a notice of assessment) of the action that will
result in taxation not in accordance with the convention. The three-year time
limit is determined by the treaty article and may differ in certain cases. The
definition of what constitutes (first) “notification” may be provided in
domestic regulations. The form of the MAP request to be filed may be prescribed
under domestic regulations as well. Alternatively, the commentary to the treaty
or the model convention may be consulted in this regard or the OECD MEMAP could
also be consulted
Further,
the period of limitation for preferring Mutual Agreement Procedure is generally
three years. In the normal course the Tax Treaty between the Contracting States
determine the period which is calculated from the date when the taxpayer
notices the treatment of taxable income, leading to likely double taxation in spite
of the DTAA entered into between both the countries. Considering the Indian
context, treaties between India-Australia, India-China, India-Germany,
India-Mauritius, India-South Africa, India-China provide a time limit of three
years while treaties between India-Belgium and India-Canada provide for two
years. There are treaties that even grant a five years limitation period like
treaty between India-Brazil which makes it sufficiently clear that the time
limit ultimately boils down to the Treaty. However recently with the advent of
the Multilateral Instrument (MLI) the time has been increased to three years
for treaties prescribing a lower period of limitation. Thus, in the case of
Belgium and Canada, the time limit will stand increased to three years. Brazil
has not signed the MLI; therefore, the five-year limit will continue.
Currently, India's treaty with the UK does not have a time limit. However, the
three-year limit will apply due to implementation of the MLI.
As
per most of the tax treaties entered into by India, an application for MAP can
be filed within three years from the first notification of the action that
gives rise to such taxation. It is pertinent to note that Article 25(1) of the
OECD Model Tax Convention also recommended a three-year limitation period for
submission of a MAP request and such timeline is also prescribed under the
Action 14 Final Report of the BEPS project. India plans to make this limitation
period uniformly applicable in its tax treaties through amendments brought
through the MLI that has already come into effect from 01.10.2019, or through
bilateral negotiations with the remaining treaty partners.
Penalty
proceedings
There
are no separate provisions under the respective tax treaties that govern the
levy of penalty in a particular case, post entering into a MAP resolution by
the respective taxpayer. Even under the Indian tax laws, the penalty provisions
constitute a self-contained code and, therefore, penalty proceedings are
distinct from assessment proceedings. As per the provisions of the respective
domestic tax laws, penalty proceedings do not cease merely due to a MAP
agreement since DTAAs are generally silent about them. Consequently, tax
authorities may continue to pursue penalty proceedings on any additions
surviving post MAP.
Does
the taxpayer have to exhaust the appeal options available under the domestic
litigation route to apply for assistance under MAP?
Option
of resolution under MAP is an additional dispute resolution option available to
the taxpayer. It can be pursued simultaneously with the dispute resolution
options available under domestic regulation.
Taxpayer
can not participate in the negotiation process between the Competent
Authorities
The
negotiation process between the Competent Authorities of countries under MAP,
are generally a ‘closed door’ event. Thus, the taxpayer would not have access
to and cannot participate in the negotiation process between the Competent
Authorities.
Taxpayers
can work with the Competent Authorities to explain their own case and positions
prior to the negotiation meetings between the Competent Authorities.
How
soon the taxpayer can expect the outcome under MAP?
Under
the Indian tax Conventions (entered into with other countries) there is no
timeline for disposal of application for assistance of Competent Authorities
under MAP. Based on experience, the resolution under MAP can be expected within
a period of two years from the filing of an application.
Is
the outcome under MAP binding on the taxpayer and the Revenue?
While
the taxpayers have the option of either accepting or rejecting the resolution
arrived at under MAP, should the taxpayer opt to accept the MAP resolution, it
will be binding on the Revenue for that international transaction and for that
Assessment Year.
Rule
44H(4) of the Indian Income Tax Rules, 1962 provide that the Assessing Officer
shall, within 90 days of receipt of the resolution by the Chief Commissioner or
Director General of Income Tax, give effect to the resolution provided:
§
The
taxpayer gives his acceptance to the resolution arrived at under MAP; and
§ Withdraw the appeal filed under the
domestic litigation provisions
Outcome
under MAP for a year can not be applied even for subsequent years
The
resolutions under MAP are for the particular issues and the Assessment Years
covered in the application for assistance of Competent Authorities under MAP.
Thus, strictly speaking, the resolution under MAP for one year cannot be
applied for the subsequent year.
That
said, the principle agreed upon for one year is likely to be followed in MAP
proceedings for the subsequent years should the taxpayer choose to apply for
MAP for the those years. However, since the MAP resolution is in the nature of
settlement between two Competent authorities, it cannot be used as a basis for
supporting arm’s length nature under the domestic litigation process.
Resolution
under MAP can not be treated as an Arm’s Length Price
The
resolution arrived at by the Competent Authorities under MAP are based on the
negotiation with the objective of settlement of issues. The negotiated
settlement cannot be considered as an Arm’s Length Price which needs to be
based on principles of Transfer Pricing.
Procedure
for withdrawal of domestic appeal in case the settlement under MAP is accepted
If
the taxpayer accepts the resolution arrived at under MAP, a letter indicating
the acceptance of resolution under MAP, and withdrawal of appeal (to the extent
of the issues covered under the MAP resolution) need to be made to the
Assessing Officer and the Appellate Authorities before whom an appeal is filed
under domestic litigation provisions.
MAP
Guidance/2022 – CBDT Letter F. No. 500/09/2016-APA-I Dated 10.06.2022
Subject:
Updated Mutual Agreement Procedure (MAP) Guidance – Regarding
The
Board has issued a guidance on MAP procedure and matters connected thereto for
the benefit of taxpayers, tax practitioners, tax authorities, and Competent Authorities (CAs) of India and of treaty
partners vide F.No. 500/09/2016-APA-I dated 7th August, 2020. Subsequently,
stakeholders have raised queries on certain related aspects of MAP, which are
not covered by existing guidance. Some partner countries have also requested for
clarity on certain issues, such as consequences of the Vivad se Vishwas scheme
on MAP. Considering all these inputs and suggestions for clarity, the Board has
decided to update the MAP guidance as detailed below.
A.
MAP and Vivad se Vishwas Scheme
2
Some partner jurisdictions and stakeholders have sought clarification on impact
of Vivad Se Vishwas Scheme on MAP. Accordingly, clarification on the interplay
between MAP and Direct Tax Vivad se Vishwas Act is added in Part B, Section II
after para (e) as under:
(f)
Direct Tax Vivad se Vishwas Act
– Government of India brought a new tax dispute resolution scheme under the
“Direct Tax Vivad se Vishwas Act, 2020’ (henceforth ‘VsV Act’), with the
objective of reducing the pending income tax litigations at various appellate
forums. The details in respect of eligibility and other provisions of the Act
are contained in the Direct Tax Vivad se Vishwas Act, 2020 and various other
circulars/ clarifications issued by the Board from time to time in this regard.
Sub-section
3 of Section 5 of the VsV act states as under:
“5(3) Every order
passed under sub-section (1), determining the amount payable under this Act,
shall be conclusive as to the matters stated therein and no matter covered by
such order shall be reopened in any other proceeding under the Incometax Act or
under any other law for the time being in force or under any agreement, whether
for protection of investment or otherwise, entered into by India with any other
country or territory outside India.”
In
this regard, where a resident tax payer opted for VsV Scheme for settlement of
a case which involves resolution of transfer pricing adjustments on
international transactions with its Associated Enterprises (AEs), and the same
is accepted by the tax authorities of India, the CAs of the other countries or
specified territories may accept MAP applications from their taxpayers (which
are AEs of the Indian taxpayer), and notify the CAs of India. The latter would
allow access to MAP but shall not deviate from the result arrived under the
VsV. Instead, they would request the CAs of the treaty partners to provide
correlative relief.
Further,
the CAs of India shall not provide access to MAP to a non-resident taxpayer
which has itself opted for the VsV scheme on the same issue, because the
applicant has given up its legal right to access MAP in accordance with
sub-section (3) of Section 5 of the VsV Act.
B.
Responsibility of MAP applicant to make True and
Complete Disclosure
3
MAP operates on the basis of trust and good faith among competent authorities
and taxpayers. Unlike normal audit scrutiny or appeal proceedings, in most
cases, MAP is resolved by CAs through discussions based on documents submitted
by the taxpayer. However, recently a couple of cases have come to the notice of
CAs wherein taxpayers have either suppressed information (invoking MAP in
respect of adjustments made by one treaty partner without mentioning the fact
that adjustment has also been made by the other treaty partner on the same
transaction) or not giving the same set of comparable to the CAs particularly
in cases where both BAPA and MAP are involved.
3.1
Further, as has been clarified in the MAP guidance, where Hon’ble ITAT has
passed a final order, the CAs of India shall not deviate from such order and
MAP in such cases shall be closed as resolved under domestic remedy. It is of
course open to the treaty partner to provide relief from double taxation in
such cases. It may be mentioned here that many of India’s treaty partners do
not allow appeal and MAP proceedings to be pursued simultaneously. The taxpayer
in those jurisdictions can pursue appeal only after the MAP process fails or
results in an outcome that is not acceptable to tax payer. On the other hand,
India follows a liberal regime where the taxpayer can choose to pursue both
appeal and MAP proceedings simultaneously. Therefore, if in a case Hon’ble ITAT
passes any order, the taxpayer must immediately notify the CAs so that MAP
proceedings are closed forthwith, and any infructuous work is avoided.
3.2
In view of the above, a new Part E is added to the MAP guidance to highlight
MAP applicants’ responsibilities, as under:
Part E
Applicant’s responsibilities
I.
Responsibility of making true disclosure A taxpayer resident in India can make
an application to the CA of India having jurisdiction over the case if it
considers that the actions of the tax authorities of the treaty partner
resulted or will result in taxation not in accordance with the relevant tax
treaty. Such an application has to be made in Form No. 34F in accordance with
rule 44G. In item (k) of Form 34F, the applicant should provide all the facts
of the case that can materially affect the negotiation process. For instance,
if adjustments have been made to the same international transaction by Indian
tax authorities as well as its treaty partner’s tax authorities, the CAs of the
two countries can be blind-sighted in negotiations if the applicant only
mentions adjustments in one jurisdiction and leaves out the crucial fact of
adjustments in the other jurisdiction.
II.
Responsibility to provide up-to-date information Good faith action is the
hallmark of alternate dispute resolution under MAP. The applicant must keep the
CAs as up-to-date as possible on all material changes in the information or
documentation previously submitted as part of, or in connection with, a
request, as well as new information or documentation relevant to the issues
under consideration. Making all relevant documentation and information
accessible to a competent authority, in good faith, will assist in the smooth
and efficient operation of the MAP process.
This
guidance has dealt with the interplay of MAP with other processes such as
regular tax appeals, tax settlements, and domestic dispute resolution schemes.
The applicant best knows about its status in other fora. The applicant should
promptly provide updated status of proceedings in other fora that could affect
the MAP process.
4
The MAP guidance as issued vide F. No. 500/09/2016-APA-I dated 7th August,
2020, and as amended above, may be adhered and referred to by taxpayers, tax
practitioners, tax authorities in India and CAs of India. If any element of the
MAP guidance comes in conflict with the domestic legislation, rules,
instructions, and circulars in India or with the DTAAs entered into by India,
the provisions of such domestic legislation, rules, instructions, and circulars
or the DTAAs, as the case may be, shall prevail.
5
A copy of consolidated MAP guidance i.e., MAP guidance dated 07.08.2020 as
amended by this communication is placed at annexure for the benefit of
stakeholders. The same has also been uploaded on the departmental website.
MAP Guidance/2020 - CBDT Letter F. No. 500/09/2016-APA-I, Dated 07.08.2020
Subject:
Mutual Agreement Procedure (MAP) Guidance – Regarding
India
has a large network of Double Taxation Avoidance Agreements (‘DTAAs’ or ‘Tax
Treaties’, hereinafter) with various countries. The DTAAs, interalia, provide
rules and mechanisms for allocation of taxing rights amongst the treaty
partners; avoidance of economic and juridical double taxation; and resolution
of taxation not in accordance with the treaty through the Mutual Agreement
Procedure (‘MAP’, hereinafter).
2.
Rule 44G of the Income-tax Rules, 1962 has been notified recently vide
G.S.R.282 (E) dated 6thMay, 2020. This rule substitutes the previous rules 44G
and 44H, which dealt with the same issue of implementation of MAP. The rule
provides, inter-alia, the processes to be followed by the competent
authority(ies) (‘CA’ or ‘CAs’ hereinafter)of India till the resolution of the
issue of taxation not in accordance with the treaty and the processes to be
followed by the field authorities to implement the outcome of the MAP. The new
rule is applicable w.e.f 6th May, 2020 and, accordingly, applies to all MAP
cases pending with the CAs of India as on 6th May, 2020.
3.
Though erstwhile rules 44G and 44H were in existence for a number of years,
detailed information regarding MAP processes and guidance on issues related to
such processes were not available in a comprehensive and consolidated manner.
The Action 14 final report on “Making Dispute Resolution More Effective”, of
the Base Erosion and Profit Shifting (‘BEPS’, hereinafter) project of the G-20
and OECD countries, had recommended that all countries that implement the BEPS
package of measures must publish comprehensive MAP guidance.
4.
In view of the above, the Board has decided to issue this MAP guidance for the
benefit of taxpayers, tax practitioners, tax authorities, and CAs of India and
of treaty partners.
5.
The MAP guidance is presented in the following four parts:
•
Part A: Introduction and Basic Information;
•
Part B: Access and Denial of Access to MAP;
•
Part C: Technical Issues; and
•
Part D: Implementation of MAP outcomes.
Part A
Introduction and Basic Information
I.
Mutual Agreement Procedure (MAP)
Mutual
Agreement Procedure (MAP) is an alternate tax dispute resolution mechanism
available to the taxpayers under the DTAAs for resolving disputes giving rise
to double taxation or taxation not in accordance with DTAAs. MAP can help in
relieving double taxation either fully or partially. Almost all DTAAs entered
into by India have the MAP Article and it provides an additional dispute
resolution mechanism to taxpayers in addition to those available under the
domestic laws of India. A taxpayer can request for assistance under MAP
regardless of the remedies provided under the Indian domestic law.
MAP
enables the CAs of India to engage with the CAs of other treaty partners and is
a process which facilitates discussions and negotiations between both treaty
partners as they endeavour to resolve international tax disputes, which are not
in accordance with the relevant DTAAs. At present, India has two CAs for MAP
cases and they are senior officers in Department of Revenue, Ministry of
Finance (Joint Secretary, FT & TR-I and Joint Secretary, FT & TR-II).
The two CAs have been designated as such by the Finance Minister of India. The
two CAs have territorial jurisdiction over the MAP cases depending upon the
location of the treaty partner. The CAs of India are independent of the tax
authorities who audit taxpayers and take their own decisions that are only
administratively governed by an internal governance mechanism within the CBDT,
Department of Revenue.
A
MAP request can be made by a taxpayer when it considers that the actions of the
tax authorities of one or both of the treaty partners results or will result in
taxation not in accordance with the relevant DTAA. MAP cases involve cross border
double taxation that could either be juridical double taxation (same income
taxed twice in the hands of the same entity in two different countries) or
economic double taxation (same income taxed in the hands of two separate
entities, who are Associated Enterprises, in two different countries). Double
taxation or taxation not in accordance with the DTAAs may arise in some of the
following circumstances:
§ Transfer Pricing adjustments
§ Existence of a Permanent
Establishment
§ Attribution of profits to a
Permanent Establishment
§ Characterisation or
re-characterisation of an income or expense
II.
India’s Tax Treaties or DTAAs
India
has a large network of tax treaties, almost all of which contain a MAP Article
based on the provisions of Article 25 of the UN/OECD Model Tax Convention.
These tax treaties (read with section 90 or 90A of the Income-tax Act, 1961)
constitute the legal basis for taxpayers to apply for a MAP and for CAs to
discuss and negotiate a MAP case with the endeavour of finding a resolution to
the dispute. It is important for taxpayers to refer to the text of the relevant
tax treaty itself to understand the conditions for applying for MAP under that
tax treaty. India’s tax treaties are available at www.incometaxindia.gov.in
All
the DTAAs entered into by India, which contain a MAP Article as mentioned
above, require that a taxpayer of either treaty partner approaches the CA of
its country of residence to request for a MAP if the tax authorities of the
other treaty partner make an adjustment or take an action that results or will
result in double taxation or taxation not in accordance with the relevant tax
treaty. In most of the tax treaties of India, the time limit for making an
application for MAP is three years from the first notification of the action
giving rise to such taxation. In a limited number of DTAAs, the time limit is
either less or more than three years. Wherever it is so, it is expected to be
changed to three years as per the recommendation contained in the final report
of BEPS Action 14. India would ensure this through amendments of such deficient
tax treaties through the Multilateral Instrument (‘MLI’, hereinafter) that has
already come into effect for India w.e.f 1st October 2019 or through bilateral
negotiations with the relevant treaty partners.
III.
Making a MAP Application in India
A
taxpayer resident in India can make an application to the CA of India having
jurisdiction over the case (depending on the location of treaty partner) if it
considers that the actions of the tax authorities of the treaty partner
resulted or will result in taxation not in accordance with the relevant tax
treaty. Such an application has to be made in Form No. 34F in accordance with
rule 44G. The relevant provision of the rule is as follows:
‘44G
(1): Where an assessee, being a resident of India, is aggrieved by any action
of the tax authorities of any country or specified territory outside India for
the reason that, according to him, such action is not in accordance with the
terms of agreement with such other country or specified territory, he may make
an application to the Competent Authority in India seeking to invoke the mutual
agreement procedure, if provided in such agreement, in Form No. 34F.’
The
following information and details are required to be provided in Form No. 34F
while making a MAP application to the CAs of India:
(a) Name of the Applicant;
(b)
Permanent
Account Number (PAN)/Aadhar Number;
(c)
Circle/Ward;
(d)
Assessment
Year(s);
(e)
Previous
Year(s);
(f)
Office
Address& Telephone Number;
(g)
Residential
Address& Telephone Number (if applicable);
(h)
Status;
(i)
Name
and Designation of Tax Authority in the other country or specified territory
(Treaty Partner);
(j)
Date
of the notice or order giving rise to the action;
(k)
Is
the order/action of the Tax Authority of the Treaty Partner not in accordance
with the agreement? If so, the reasons thereof; and
(l) Details of remedy sought in the
other country or specified territory, if any, with documentary evidence.
Form
No. 34F also requires information about the name of the country or specified
territory, the action of the tax authorities of which have aggrieved the
Applicant. In item (k) above, the Applicant should provide the facts of the
case; the analysis of issue(s) that are sought to be resolved under the MAP;
and the reasons why the action taken by the tax authorities are not in
accordance with the relevant DTAAs. In addition to the above information and
details, Form No. 34F requires the following documents to be furnished at the
time of making the application:
•
Copy of notice or order giving rise to the action not in accordance with the
relevant DTAAs;
•
Any document(s) as support for considering the order/action of the tax
authorities of the treaty partners to be not in accordance with the relevant
DTAAs;
•
Any document(s) as evidence of remedy sought in the other country or specified
territory; and
•
Any other document that the applicant may want to submit or the CAs of India
may ask for.
If
an Associated Enterprise or related party of an Indian taxpayer submits a MAP
application before the CA of its country or specified territory of residence
(treaty partner), in respect of any order/action of the tax authorities of
India or of the tax authorities of such treaty partner, a copy of such MAP
application must also be provided to the CA of India having jurisdiction over
the case. The CAs of such treaty partners are expected to expeditiously
intimate the CAs of India about their acceptance of a MAP application.
The
MAP application in Form No. 34F or the copy of the MAP application filed before
the CAs of other countries or specified territories (treaty partners) must be
submitted to the CA of India having jurisdiction over the case. There are two
CAs in India. Their details are as under:
Where
the treaty partner is a country or specified territory in Europe and North
America (including the Caribbean) –
Joint Secretary, FT&TR-I,
Central Board of Direct Taxes,
Department of Revenue,
Ministry of Finance, Government of
India
Room No 803, 8th Floor,
"C" Wing, HUDCO-Vishala
Building, Bhikaji Cama Place,
New Delhi-110066
Where
the treaty partner is a country or specified territory in any part of the world
other than Europe and North America (including the Caribbean) –
Joint Secretary, FT&TR-II,
Central Board of Direct Taxes,
Department of Revenue,
Ministry of Finance, Government of
India
Room No 804, 8th Floor,
"C" Wing, HUDCO-Vishala
Building, Bhikaji Cama Place,
New Delhi-110066
IV. The MAP Process
Once
a MAP application is accepted by the CA of India having jurisdiction over the
case, she shall intimate the CA of the relevant treaty partner about such
acceptance through a written communication (notification or invocation letter).
In such written communication, she would also briefly indicate why she feels
that the action of the tax authorities of the treaty partner results or will
result in taxation not in accordance with the relevant DTAA. She would also
request the CA of the treaty partner to provide her written position (position
paper) on the order/action of the tax authorities of her country.
If
a MAP application is found to be not acceptable by the CA of India having
jurisdiction over the case, she shall write to the CA of the relevant treaty
partner informing her about the reasons for which the MAP application cannot be
accepted and request the latter to send her views/comments on the same
(notification and bilateral consultation). Once the CAs of both treaty partners
have exchanged views and come to a common understanding, the decision on the
MAP application shall be communicated by the CA of India having jurisdiction
over the case to the Indian taxpayer who had made the MAP application.
As
has been indicated above, once a MAP application is accepted, the CAs shall
exchange views. In most cases, the views shall be communicated through position
papers. Once a position paper is received from the other CA, the CA of India
having jurisdiction over the case would examine the same and come to a
negotiating position. She may also provide her own written comments to the
other CA or ask for further clarification from her. After exchange of positions
and comments, both the CAs would try and negotiate a resolution to the dispute
at hand. They may meet in person or negotiate remotely through teleconference,
video conference, or email.
If both the CAs successfully resolve a MAP
case, they would formalise a mutual agreement amongst themselves at the
earliest possible. The CA of India having jurisdiction over the case would
intimate the Indian taxpayer who had applied for MAP about the terms and
conditions of the resolution. Acceptance or rejection of the MAP resolution is
the prerogative of the Indian taxpayer but in either situation, the MAP case
would be closed by both the CAs as resolved.
If
both the CAs are unable to resolve a MAP case, they would close the MAP case as
unresolved. The CA of India having jurisdiction over the case shall inform the
Indian taxpayer about the non-resolution of the dispute. In a reverse
situation, where the MAP application has been accepted by the CAs of treaty
partners, some of the processes described above would flow in the reverse
direction.
In
addition to the above bilateral MAP process, in appropriate cases, the CAs of
India can participate in multilateral MAP discussions with more than one treaty
partner. Multilateral MAP cases shall involve all the above processes (like
exchange of position papers, negotiations, finalization of mutual agreements,
etc.) on a multilateral basis amongst the CAs concerned. However, a
multilateral MAP case shall be executed in the form of a series of parallel
bilateral MAP cases. The CAs of India can agree to accept a multilateral MAP
request if all the following conditions are fulfilled:
•
All the participating countries or specified territories have DTAAs with each
other;
•
The transaction or issue in dispute has a bearing on all the treaty partners,
directly or indirectly, and non-resolution of the dispute would result in
taxation not in accordance with the relevant DTAAs; and
•
The CAs of all the participating countries or specified territories agree to
negotiating a multilateral MAP.
V.
Timeframe for Resolving and Implementing MAP cases
India
is committed to endeavour to resolve MAP cases within an average timeframe of
24 months. It may be clearly understood that the commitment is not to resolve
MAP cases within that timeframe (it may not be possible for both CAs to agree
on a resolution in all cases) but endeavour to do so. The commitment is in
conformity with the minimum standards recommended in the BEPS Action 14 final
report.
The
period of 24 months is to be computed from the “Start Date” of a MAP case.
Since, presently, most of the MAP cases before the CAs of India arise from a
MAP application made by a non-resident taxpayer before the CAs of other
countries or specified territories (treaty partners), the “Start Date” is
determined by the other CAs in accordance with the MAP Statistics Reporting
Framework.
At
times, the CAs of India receive intimation of MAP cases from the CAs of the
treaty partners much beyond the “Start Date”. This results in delaying the
endeavour to resolve such MAP cases. India is fully committed to implement the
outcomes of each and every MAP case. It is the endeavour of India to implement
each MAP outcome expeditiously. The process and timeframes to implement such
outcomes are contained in rule 44G of the Income-tax Rules, 1962. The rule,
inter-alia, provides the following:
§ How to apply for a MAP;
§ Whom to apply to for a MAP;
§ The role of the CAs of India in
making an endeavour to resolve tax disputes under the MAP;
§ Timeframes and processes after the
resolution of a MAP case; and
§ Role of Indian taxpayer and Indian
tax authorities after the resolution of a MAP case.
The
rule can be accessed in the Income-tax Rules, 1962 that is available on our
website www.incometaxindia.gov.in It can also be accessed at the following
link: https://www.incometaxindia.gov.in/news/notification23_2020.pdf
Part B
Access and Denial of Access to MAP
I.
Access to MAP
India
provides wide and easy access to MAP to Indian taxpayers if they are aggrieved
by an order/action of tax authorities of other countries or specified
territories (treaty partners) and such orders/actions in the opinion of the
taxpayer results or will result in taxation not in accordance with the relevant
DTAAs. The procedure for making an application has been discussed in Part A and
the details can be seen in rule 44G of the Income-tax Rules, 1962.
India
also provides wide and easy access to MAP when the CAs of other countries or
specified territories (treaty partners) accept a MAP application from their
taxpayers and then notify the CAs of India about their acceptance. These MAP
cases may arise from the order/action of tax authorities of India or of the
treaty partners that in the opinion of the overseas taxpayer results or will
result in taxation not in accordance with the relevant DTAAs. India shall
provide access to MAP in respect of, inter-alia, the following types of
cases/situations if they result in taxation not in accordance with the relevant
DTAAs:
(a)
Transfer
Pricing adjustments;
(b)
Determination
of existence of a Permanent Establishment;
(c)
Attribution
of profits to Permanent Establishments, whether admitted or not by the
taxpayer;
(d)
Characterisation
or re-characterisation of an item of expense or payment as a taxable expense or
payment (like Royalty or Fee for Technical Services (FTS) or Interest); and
(e)
Characterisation
or re-characterisation of an item of receipt as a taxable income (like Royalty
or Fee for Technical Services (FTS) or Interest).
India
shall provide access to MAP even in a situation where the Indian tax
authorities apply domestic anti-abuse provisions.
In
certain situations, where obligation to deduct tax at source on the payment
made by an Indian entity to a non-resident entity is enforced by an order
passed under section 201 of the Income-tax Act, 1961 and the same is disputed
by the non-resident entity, MAP access will be provided to such non-resident
entity anticipating an event of double taxation or taxation not in accordance
with the relevant DTAA. However, such action being purely under the domestic
law and the order under section 201 not being an order determining any tax on
income, the MAP discussion will be taken up only after the assessment order is
passed in the case of the non-resident taxpayer, and such non-resident taxpayer
considers that the assessment order results or would result in taxation not in
accordance with the relevant DTAA.
There
are a few circumstances where India would provide access to MAP but the CAs of
India would not negotiate any other outcome than what has already been achieved
in such circumstances. The circumstances are the following:
(a)
Unilateral Advance Pricing Agreements
– Where an Indian or foreign taxpayer enters into a unilateral Advance Pricing
Agreement (‘UAPA’, hereinafter) with the Central Board of Direct Taxes (CBDT),
the CAs of the other countries or specified territories may accept MAP
applications from their taxpayers in respect of such UAPAs if any decision of
the tax authorities of such other countries disturbs the income declared in the
returns filed in pursuance of the UAPAs, and notify the CAs of India. The
latter would allow access to MAP but would not change the terms and conditions
of the UAPA. Rather, they would request the CAs of the treaty partners to
provide correlative relief. In respect of UAPA applications under consideration
and negotiation, actions of tax authorities in India or overseas during such
pendency of UAPA applications could give rise to taxation not in accordance
with the relevant DTAAs. In such situations, the CAs of India or the CAs of the
other countries or specified territories may accept MAP applications from their
taxpayers and notify each other. While the CAs of India would allow access to
MAP, they would not process such MAP cases till the UAPA is entered into. If
the UAPA is entered into, the CAs of India would not change the terms and
conditions of the UAPA and would request the CAs of the treaty partners to
provide correlative relief. However, if the UAPA is not entered into due to any
reason, the CAs of India would start processing such MAP cases, as all other
MAP cases.
(b)
Safe Harbour –
Where an Indian or foreign taxpayer applies safe harbour provisions, as
applicable on its international transactions, and the return of income is
accepted by the tax authorities of India, the CAs of the other countries or
specified territories may accept MAP applications from their taxpayers in
respect of any decision of the tax authorities of such other countries if such
decision disturbs the returns filed in pursuance of such safe harbour
provisions, and notify the CAs of India. The latter would allow access to MAP
but would not change the ALP of the international transactions covered under
the safe harbour provisions. Rather, they would request the CAs of the treaty
partners to provide correlative relief.
(c)
Orders of Income Tax Appellate Tribunal – Since MAP and domestic remedy proceedings can be
availed by the taxpayers simultaneously, there could be instances where the
Income Tax Appellate Tribunal (‘ITAT’, hereinafter) in India passes an order in
respect of the same disputes that are also being examined under MAP. Since the
ITAT is an independent statutory appellate body, which is outside the
administrative jurisdiction of the Indian tax authorities; and is the highest
fact-finding body on tax matters, the CAs in India shall not deviate from the
orders of the ITAT for the relevant year where the dispute is decided on
merits. In such cases the CA of India would request the CAs of the treaty
partners to provide correlative relief, if required. Such MAP cases shall be
closed as having been resolved by a domestic remedy. However, if the order of
the ITAT does not resolve the disputes but only sets them aside to be
adjudicated afresh, then access to MAP would be provided again after the fresh
adjudication by tax authorities, if requested for by the relevant taxpayers.
II.
Denial of Access to MAP
The
Competent Authorities (CAs) of India can deny access to MAP in some situations
or in certain particular cases. Such situations and particular cases are as
follows:
(a)
Delayed MAP Applications
- If the taxpayers make a MAP application to the Competent Authorities (CAs) of
India or to the CAs of the treaty partners after the expiry of the time period
specified in the Article relating to MAP(corresponding to Article 25(1) second
sentence of the OECD Model Tax Convention) of the relevant DTAAs, the CAs of
India would not provide access to MAP. This time period in most treaties is
within three years from the first notification of the order/action of tax
authorities that results or will result in taxation not in accordance with the
relevant DTAAs. India is committed to providing this 3-year time period and
almost all the DTAAs entered into by India has this time period. There are very
few DTAAs where this minimum time period is missing, and efforts are on to
amend those DTAAs to provide for the same.
(b)
Taxpayer’s Objection Not Justified
– If the Competent Authorities (CAs) of India come to a conclusion that the
objection raised by the taxpayer on the action taken by tax authorities is not
justified, they can deny access to MAP. However, before taking a decision to
deny access to MAP in such situations, the CA of India having jurisdiction over
the case would discuss the matter with the taxpayer and the CA of the treaty
partner. However, such consultation shall not be interpreted as consultation as
to how to resolve the case.
(c)
Incomplete MAP Applications/Documents/Information – When an Indian taxpayer makes a
MAP application in India in Form No. 34F, it is expected to be complete in all
respects. If the CAs of India point out some errors or defects in the
application or ask for additional information/documents, the Indian taxpayer
should remedy the errors/defects and should provide the information/documents
within a reasonable time period. There is no prescribed time period in rule 44G
for the Indian taxpayer to comply with such additional requirements. Hence, the
CAs of India are expected to provide adequate time to the taxpayer to remedy
the errors/defects and provide the information/documents. Normally, a time
period of 30 days for remedying the errors/defects and 90 days for providing
the additional information/documents should be provided by the CAs of India to
facilitate the process, which can be extended by the CAs depending on the facts
and circumstances of the case. In respect of MAP applications accepted by the
CAs of treaty partners and subsequently notified to the CAs of India and
accepted by the latter, rule 44G provides that the CAs of India can call for
information/documents from the Indian taxpayers or their representatives. The
rule does not prescribe any time limit upon the taxpayers or their
representatives to furnish such information/documents. Hence, the CAs of India
are expected to provide adequate time to the taxpayers or their representatives
to provide the information/documents. Normally a time period of 90 days for
providing the additional information/documents should be provided by the CAs of
India to facilitate the process, which can be extended by the CAs depending on
the facts and circumstances of the case.
(d)
Income-tax Settlement Commission
– Sections 245A to 245L in Chapter XIX-A of the Income-tax Act, 1961 provide
for the constitution of a commission called the Income-tax Settlement
Commission (‘ITSC’, hereinafter) for the settlement of cases. The ITSC is an
independent statutory dispute resolution body. The process of settlement of
disputes by ITSC is independent from the audit and examination functions of tax
authorities. It is a voluntary process and a taxpayer has to apply for a
settlement of its disputes. Once the application is accepted, the ITSC examines
all aspects of the dispute and comes out with a settlement order. If the ITSC
issues a settlement order, the same is binding on both the taxpayer and the tax
authorities. The CAs of India shall not provide access to MAP to an Indian
taxpayer who has already obtained a settlement order from the ITSC and such
order covers the issues that are sought to be included in the MAP application.
Similarly, the CAs of India shall not admit a case under MAP where the CAs of
the treaty partners have accepted a MAP application by a taxpayer of their
country or specified territory who (or its associated enterprise in India) has
already obtained a settlement order from the ITSC and such order covers the
issues that have been included in the MAP application accepted by the CAs of
the treaty partners. The CAs of India shall also not provide access to MAP to
an Indian taxpayer or admit a case under MAP where the CAs of the treaty
partners have accepted a MAP application by a taxpayer of their country or specified
territory, if either of such taxpayer’s settlement application has been
admitted by the ITSC and the settlement matter is under examination by the
ITSC. However, if the ITSC refuses to issue a settlement order, or issues an
order without making a settlement, or the Page 13 of 17 proceedings before the
ITSC abate, and then the tax authorities take action which in the opinion of
the taxpayer results or will result in taxation not in accordance with the
relevant DTAAs, the CAs of India shall provide access to MAP to an Indian
taxpayer or admit a case under MAP where the CAs of the treaty partners have
accepted a MAP application by a taxpayer of their country or specified
territory.
(e)
Authority for Advance Rulings
- Sections 245N to 245V in Chapter XIX-B of the Income-tax Act, 1961 provide
for the constitution of an authority called the Authority for Advance Rulings
(‘AAR’, hereinafter) for giving advance rulings on questions/issues brought
before it by a taxpayer. The AAR is an independent statutory dispute prevention
body. The process of giving advance rulings by AAR is independent from the
audit and examination functions of tax authorities. It is a voluntary process
and a taxpayer has to apply for obtaining a ruling. Once the application is
admitted, the AAR examines all aspects of the question(s)/issue(s) brought
before it and pronounces its advance ruling on such question(s)/issue(s). If
the AAR pronounces an advance ruling, the same is binding on both the taxpayer
and the tax authorities. The CAs of India shall not provide access to MAP to an
Indian taxpayer who has already obtained an advance ruling from the AAR and
such advance ruling covers the issues that are sought to be included in the MAP
application. Similarly, the CAs of India shall refuse to admit a case under MAP
where the CAs of the treaty partners have accepted a MAP application by a
taxpayer of their country or specified territory who (or its associated
enterprise in India or the relevant party to the transaction on which the
advance ruling is sought) has already obtained an advance ruling from the AAR
and such advance ruling covers the issues that have been included in the MAP
application accepted by the CAs of the treaty partners.
The
CAs of India shall also not provide access to MAP to an Indian taxpayer or
admit a case under MAP where the CAs of the treaty partners have accepted a MAP
application by a taxpayer of their country or specified territory, if either of
such taxpayer’s application (or that of the relevant party to the transaction
on which the advance ruling is sought) has been admitted by the AAR and the
question(s)/issue(s) specified in the application is under examination by the
AAR.
In
addition to the situations and particular cases at (a) to (e) above, it is
clarified that no MAP access shall be provided in respect of issues that are purely
governed by India’s domestic law and arise due to the implementation of India’s
domestic legal provisions.
Part C
Technical Issues
I.
Downward Adjustment
The
CAs of India can negotiate a MAP case with their counterparts and withdraw all
or part of the adjustments made by tax authorities in India. However, the CAs
of India cannot go below the returned income, as the same is expressly
prohibited in Indian domestic law. In respect of transfer pricing cases, a
plain reading of the provisions of sub-section (3) of section 92 of the
Income-tax Act, 1961 makes it clear that if the application of the arm’s length
price of an international transaction results in reducing the income chargeable
to tax or increasing the loss, as computed on the basis of books of account
maintained, then the provisions of the said section 92 shall not apply. The CAs
of India have to adhere to this provision while negotiating transfer pricing
MAP cases involving adjustments made by Indian tax authorities.
However,
in respect of MAP cases involving adjustments made by tax authorities of a
treaty partner, the Indian CA may go below the returned income of the Indian
taxpayer to implement the MAP in full measure in accordance with treaty
obligations.
II.
Resolution of Recurring Issues
The
CAs of India may resolve recurring issues on the same principles, as adopted in
a prior MAP resolution. However, they cannot resolve such recurring issues in
advance of an order/action by the tax authorities in India. In other words,
they do not have the power to prevent the tax authorities from making an order
that is not in conformity with prior MAP resolutions in case of the same
taxpayer and on the same issues.
III.
Interest and Penalties
In
most of the disputes on the quantum of income, that are resolved under MAP,
there are consequential issues of interest and penalty. The CAs of India do not
have the mandate to consider such consequential issues and negotiate disputes
arising from such issues. These are to be administered under the domestic laws.
However, where the amount of interest and penalties are linked to the quantum
of income, such interest and penalties shall be varied in the same proportion
as the variation in the quantum of income due to a MAP resolution, in
accordance with the domestic law. It may be noted that there are provisions of
fees/penalty under Indian Income-tax Act which are not connected to the quantum
of income and, accordingly, those would not be affected by the resolution under
MAP.
IV.
Secondary Adjustments
India
has a provision to make secondary adjustments in respect of cases where the
primary transfer pricing adjustment has been made in financial year 2016- 17 or
thereafter. Thus, the CAs of India would be obligated to make such secondary
adjustments part of the MAP resolution in respect of cases pertaining to
financial year 2016-17 or thereafter.
V.
Bilateral & Multilateral
APAs
India has a well-established APA Program that includes unilateral, bilateral
and multilateral APAs. In respect of issues for which a bilateral or
multilateral APA application has already been filed and accepted, MAP
applications on the same issues for the same years should not be made by the
taxpayers. If such MAP applications are made either before the CAs of India or
the CAs of treaty partners, the CAs of India shall consult with their
counterparts and not admit such MAP applications. However, if a bilateral or
multilateral APA application fails to result in an Agreement for any reason,
then a MAP application on the same issue and for the same years can be made
either before the CAs of India or the CAs of treaty partners and the same may
be accepted by the CAs of India if it satisfies all conditions of a MAP
application.
VI.
Suspension of Collection of Taxes during the Pendency of MAP
With
a limited number of treaty partners, India has entered into a Memorandum of
Understanding (MoU), under the ambit of the MAP Article, that provides for
keeping the collection of taxes in a case under suspension during the pendency
of MAP in that case. The taxes whose collection can be suspended are those that
have arisen from the dispute that is under discussion in MAP. Taxpayers have to
adhere to the terms and conditions mentioned in the MoU to be able to get the
collection of taxes suspended. In respect of MAP cases with countries where no
such MoU exists in the DTAAs, the domestic law of India (including
Instructions/Circulars issued by CBDT) shall govern the procedures related to
suspension of collection of taxes or stay of demand.
VII
Adjustment of taxes paid in pursuance of demand raised by an order under
Section 201 of the Income-tax Act
Payment
of taxes (excluding interest) made as a result of demand arising out of an
order passed under section 201 of the Income-tax Act on the Indian taxpayer
(payer entity) may be allowed to be adjusted against the tax liability of the
non-resident taxpayer(payee entity) in the event of resolution of MAP in the
case of such non-resident taxpayer for the relevant issues and relevant years.
Part D
Implementation of MAP Outcomes
I.
Implementation of MAP
India
is committed to implementing MAP outcomes in each and every case. There are no
legal or administrative impediments to implementing MAP outcomes. The only
exception to this general rule is MAP cases in which an order of the ITAT (for
the same assessment year that has been resolved under MAP) comes to the
knowledge of the CAs of India after the MAP has been resolved or is pronounced
after the MAP has been resolved but not yet implemented. In respect of the
above cases/situations, the MAP outcomes cannot be implemented and the CAs of
India would inform their counterparts about the outcomes of the ITAT order and
request them to provide correlative relief for the adjustments sustained by the
ITAT, if any.
II.
Timelines
The
new rule 44G, which has been discussed earlier, provides clear timelines for
the taxpayer and the tax authorities in India to implement a MAP that has been
resolved by the CAs of both treaty partners. The taxpayer has been provided a
time period of 30 days (from the date of receipt of a communication from the
CAs of India) to convey its acceptance of the MAP resolution and to submit
evidence of withdrawal of domestic appeals. Conveying of acceptance of the MAP
resolution within this time period is mandatory and failure to do so may render
the MAP resolution unimplementable. Similarly, the Assessing Officer has been
provided a time period of one month (from the end of the month in which he
receives the letter of the CA of India having jurisdiction over the case
providing details of the resolution) for giving effect to the MAP resolution.
These timelines are expected to quicken the MAP implementation process and make
it more efficient and effective. While intimating the Pr. CCIT concerned the
details of resolution agreed under the MAP, the CAs of India shall mark a copy
of their letter to the Assessing Officer, her controlling officer, the CIT/PCIT
and CCIT concerned, and to the taxpayer to ensure expeditious implementation.
III.
Information to CAs of India
The
Assessing Officer, in addition to sending a copy of the order giving effect to
the MAP resolution to the CA of India having jurisdiction over the case, must
also provide information regarding the amount/date of payment of taxes by the
taxpayer or amount/date of issue of refund to the taxpayer (as the case may
be), withdrawal of appeals filed by the tax authorities, and any other relevant
details.
6.
The MAP guidance, as above, may be adhered and referred to by taxpayers, tax
practitioners, tax authorities in India, and CAs of India. If any element of
the MAP guidance comes in conflict with the domestic legislation, rules,
instructions, and circulars in India or with the DTAAs entered into by India,
the provisions of such domestic legislation, rules, instructions, and circulars
or the DTAAs, as the case may be, shall prevail.
CBDT
Directs Suspension of Collection of Taxes During Mutual Agreement Procedure
(MAP) Under India-Sweden DTAA [CBDT Instruction No. 01/2017, Dated 04.01.2017]
The
CBDT has issued Instruction No. 01/2017 dated 04.01.2017 stating that on
receipt of a formal request for suspension of collection of outstanding tax
from a taxpayer who is a resident of Sweden and where MAP has been invoked
through the Competent Authority of Sweden, the Assessing Officers are required
to keep the enforcement of collection of outstanding taxes in abeyance for a
period of two years in respect of such taxpayers subject to fulfillment of
certain conditions.
Subject:
India-Sweden Convention for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion (DTAC or the Convention) – Suspension of Collection of Taxes
during Mutual Agreement Procedure (MAP) – Regarding
Attention
is invited to Article 26 of the India – Sweden DTAC, which provides for Mutual
Agreement Procedure (MAP) between the Competent Authorities of India and Sweden
for avoiding taxation which is not in accordance with the Convention. During
the pendency of MAP, recovery of tax demand could lead to potential hardships
for the taxpayers as tax demand is yet to attain finality. Considering the
hardship faced by the taxpayers during the pendency of MAP, as well as for
efficient management of collection of revenue, the Competent Authorities of
India and Sweden have signed a Memorandum of Understanding (MoU) regarding
suspension of collection of taxes during the pendency of MAP. In terms of the
MOU, the collection of outstanding taxes in case of a taxpayer whose case is
pending in MAP before the Competent Authorities of India and Sweden, would be
kept in abeyance for a period of two years (extendable to a maximum period of
five years through mutual agreement between the Competent Authorities of India
and Sweden) subject to furnishing of a bank guarantee of an amount equal to the
amount of tax under dispute and interest accruing thereon, as per the
provisions of the Income-tax Act.
2.
On receipt of a formal request for suspension of collection of outstanding tax
from a taxpayer who is a resident of Sweden and where MAP has been invoked
through the Competent Authority of Sweden, the Assessing Officers are required
to keep the enforcement of collection of outstanding taxes in abeyance for a
period of two years in respect of such taxpayers subject to fulfillment of the
following conditions:
(i) the Foreign Tax and
Tax Research I (FT&TR I) Division of the Central Board of Direct Taxes
confirms the pendency of MAP; and
(ii) the taxpayer
furnishes a bank guarantee to the Assessing Officer in the model draft format
annexed to the MoU for an amount calculated in accordance with the manner
indicated therein.
3.
Further, the provisions of the MoU shall also apply to an Indian resident
taxpayer in cases involving transfer pricing adjustments, where MAP has been
invoked by the resident of Sweden through the Competent Authority of Sweden.
4.
The effect of the MoU is that the furnishing of the bank guarantee should be
treated as sufficient arrangement for exercising discretion by the Assessing
Officer for extension of time limit for payment of taxes in terms of
sub-section (3) of Section 220 of the Income-tax The extension, however, shall
subsist only for two years from the date on which communication from FT&TR
I Division about the invocation/pendency of MAP is received by the Assessing
Officer. This period of two years may be extended through mutual agreement
between the Competent Authorities of India and Sweden and any such extension
will be communicated to the Assessing Officer by FT&TR I Division of the
CBDT. However, in no case shall the aggregate periods for which collection is
suspended exceed five years.
5.
In case the Competent Authorities of India and Sweden agree that there is no
resolution possible, an intimation to this effect shall be given to the
Assessing Officer who shall, thereafter, be entitled to enforce recovery of the
taxes (including interest and penalty, if any). If the taxpayer fails to pay
the taxes (including interest and penalty, if any), the Assessing Officer shall
be entitled to invoke the bank In case the time limit of two years has expired
and no communication has been received from FT&TR I Division about MAP
resolution, the Assessing Officer, before proceeding to making recoveries or
invoking the bank guarantee, shall seek inputs from FT&TR I Division about
the status of MAP in such cases. Recovery of taxes (including interest and
penalty, if any) may only be proceeded with after getting confirmation from
FT&TR I Division that no extension beyond two years has been granted
through mutual agreement between the Competent Authorities of India and Sweden.
6.
In cases where a resolution of dispute is arrived at by the Competent
Authorities of India and Sweden after mutual consultation, the taxes (including
interest and penalty, if any)payable by the Indian taxpayer shall be determined
by the Assessing Officer in terms of such resolution, as per the procedure laid
down in Rule 44H of the Income Tax Rules, After the revised notice of demand is
sent to the taxpayer, the amount shall be recoverable from the taxpayer. In
case the taxpayer fails to pay the demand, the bank guarantee so furnished
shall be invoked after seeking the consent of the Indian Competent Authority,
which shall grant the same after intimating its counterpart in Sweden.
7.
The Assessing Officers as well as their controlling officers are advised to
keep a close watch on the limitation of the bank guarantee furnished under the
For this purpose, a control register should be maintained in the office of the
Assessing Officers and the same may be periodically inspected by the
jurisdictional Additional or Joint CIT and/or the jurisdictional Principal CIT
or CIT.
8.
A copy of the MoU, along with its Annexure containing the model draft format of
the bank guarantee, is enclosed.
9.
These instructions are issued under section 119 of the Income-tax Act and the
same may be brought to the notice of all the officers in your charge.
Press
Release : Dated 16.02.2016
Subject : Section 90
of the Income-tax Act, 1961 - Double Taxation Agreement - CBDT resolves disputes of Rs. 5000 crore
under mutual agreement procedure (MAP) of tax treaties
Double
Taxation Avoidance Agreements (DTAAs) i.e. Tax Treaties signed by India with
various countries contain an Article to relieve taxpayers from double taxation
through a Mutual Agreement Procedure (MAP). Internationally, the MAP is an
important mechanism to resolve tax disputes between countries. The MAP program
is led by one or more Competent Authorities designated by the signatory
countries to resolve tax disputes under the provisions of each treaty. In the
last two years, increased focus on MAP has resulted in resolution of large
number of disputes relating to double taxation.
Since
1st April, 2014 till date, the Central Board of Direct Taxes has resolved 180
cases under MAP. The total amount of income locked up in dispute in these cases
is approximately Rs. 5,000 crore. The resolved cases pertain to various sectors
of the economy like software services, IT enabled services, manufacturing,
consultancy services, etc. The countries with which cases have been resolved
are USA, Japan, United Kingdom and China.
MAP
has emerged as an effective alternative tax dispute resolution mechanism. Its
use to resolve disputes has provided comfort to foreign investors and also
reduced the number of cases under litigation. This is one of the actions taken
by CBDT to ensure a fair and judicious dispute resolution regime to encourage
foreign investment.
Press
Release, Dated 28.01.2016
Subject : Section 90
of the Income-tax Act, 1961 - Double Taxation Agreement - Resolution of more than 100 cases of
transfer pricing disputes with USA under Mutual Agreement Procedure (MAP)
One
of the significant steps taken by Central Board of Direct Taxes to boost
investment sentiments among MNCs is the landmark Framework Agreement signed
with the Revenue Authorities of USA in January, 2015. This agreement was
finalised under the Mutual Agreement Procedure (MAP) provision contained in the
India-USA Double Taxation Avoidance Convention (DTAC). The agreement seeks to
resolve about 200 past transfer pricing disputes between the two countries in
the Information Technology (Software Development) Services [ITS] and
Information Technology enabled Services [ITeS] segments. More than 100 cases
have already been resolved and some more are expected to be resolved before the
end of this fiscal.
Prior
to resolution of disputes under the Framework Agreement the US bilateral APA
programme was closed to India. The success of the framework Agreement in short
period of one year has led to the US Revenue Authorities opening up their
bilateral APA programme to India. The USA is expected to begin accepting
bilateral APA applications shortly.
The
MAP programmes with other countries like Japan and UK are also progressing well
with regular meetings and resolution of past disputes. The CBDT is confident
that a combination of a robust APA programme and a streamlined MAP programme
would be helpful in creating an environment of tax certainty and encourage MNCs
to do business in India.
Press
Release, Dated 09.12.2015
Subject : Section 90 of the income-tax act, 1961 - Double
Taxation Agreement - Meeting between - meeting between heads of revenue
administration of India and Korea for suspension of collection of taxes during
pendency of Mutual Agreement Procedure (MAP)
A
meeting was held on 9th December, 2015 between Indian and Korean delegations
headed by Revenue Secretary and Commissioner, National Tax Service, Korea under
the Memorandum of Understanding for Mutual Co-operation between the countries.
During the meeting, a new Memorandum of Understanding (MoU) on suspension of
collection of taxes during pendency of Mutual Agreement Procedure (MAP) was
signed. This MoU will relieve the burden of double taxation for the taxpayer in
both the countries during the pendency of MAP proceedings. Further, both sides
noted that transfer pricing dispute cases will be taken up for MAP under the
revised DTAA between India and Korea. This is a step towards ease of doing
business in India for Korean companies as it will relieve economic double
taxation and promote cross-border trade and investment.
CBDT Instruction No. 3/2015 [F. No. 500/2/2015-APA-II], Dated 10.04.2015
Subject : Section 90
of the income-tax act, 1961 - Double Taxation Agreement - India-UK convention
for avoidance of double taxation and prevention of fiscal evasion - suspension
of collection of taxes during Mutual Agreement Procedure (MAP)
Article
27 of the India-UK DTAC provides for a Mutual Agreement Procedure (MAP) for
avoidance of double taxation. Paragraph 4 of Article 27 authorises the
Competent Authorities to develop appropriate bilateral procedures, conditions,
methods and techniques for implementation of MAP provided for in the Article.
Accordingly, with a view to avoid unintended hardship to the taxpayers, as well
as for the efficient management of collection of revenue, the Competent
Authorities of India and UK had entered into a Memorandum of Understanding
(MoU) regarding suspension of collection of taxes during the pendency of MAP.
2.
This MoU was brought to the notice of the field formation vide Instruction No.
3/2004, dated 19/3/2004, wherein it was stated that the collection of
outstanding taxes in the case of a taxpayer, who is a resident of UK and whose
request under MAP is under consideration of the Competent Authorities, shall be
kept in abeyance subject to furnishing of a bank guarantee of an amount equal
to the amount of tax under dispute and interest accruing thereon as per the
provisions of the Income-tax Act.
3.
In view of a large number of transfer pricing disputes arising over a period of
time and also in view of the stated intention of the MoU to avoid unintended
hardship to the taxpayers involved in MAP, it is clarified that the provisions
of the MoU are equally applicable to Indian resident taxpayers in cases
involving transfer pricing adjustments, where MAP has been invoked by the UK
resident. Thus, an Indian resident taxpayer liable to pay taxes on income, due
to transfer pricing adjustments, which may have been charged to tax in the
hands of its Associated Enterprise (AE) in UK, is covered under the provisions
of the aforesaid MoU.
4.
In view of the above, Instruction No. 3/2004, dated 19/3/2004 is modified as
under:
4.1
On receipt of a formal request for suspension of collection of outstanding tax
in terms of the MoU from a taxpayer being a resident of UK, or a resident of
India in cases involving transfer pricing adjustments, where MAP has been
invoked through the UK Competent Authority, the Assessing Officers are required
to keep the enforcement of collection of outstanding taxes in abeyance in
respect of such taxpayer subject to fulfilment of the following conditions:
(i) the Foreign Tax and Tax Research Division of
the Central Board of Direct Taxes confirms the pendency of MAP; and
(ii) the taxpayer furnishes a bank guarantee to
the Assessing Officer in the model draft format annexed to the MoU for an
amount calculated in accordance with the manner indicated therein.
4.2
The effect of the MoU is that the furnishing of the bank guarantee should be
treated as sufficient arrangement to qualify for exercising discretion by the
Assessing Officer for extension of time limit for payment of taxes in terms of
sub-section (3) of section 220 of the Income-tax Act. The extension, however,
shall subsist only till the time the case is under MAP. In case the Competent
Authorities agree that there is no resolution possible, an intimation to this
effect shall be given to the Assessing Officer who shall, thereafter, be
entitled to invoke the bank guarantee in case the taxpayer fails to pay the
demand.
4.3
In cases where a resolution of dispute is arrived at by the Competent
Authorities after mutual consultation, the tax payable shall be determined by
the Assessing Officer in terms of such resolution as per the procedure laid
down in Instruction No. 1 dated 6.11.2002. After the revised notice of demand
is sent to the taxpayer, the amount shall be recoverable from the taxpayer. In
case the taxpayer fails to pay the demand, the bank guarantee so furnished
shall be invoked after seeking the consent of the Indian Competent Authority,
which shall grant the same after intimating its counterpart in UK.
4.4
The Assessing Officers as well as their controlling officers are advised to
keep a close watch on the limitation of the bank guarantee furnished under the
MAP.
5.
A copy of the MoU, along with its Annexure containing the model draft format of
the bank guarantee, is enclosed.
6.
These instructions are issued under section 119 of the Income-tax Act and the
same may be brought to the notice of all the officers in your charged
MEMORANDUM
OF UNDERSTANDING REGARDING DEFERMENT OF ASSESSMENT AND/OR SUSPENSION OF
COLLECTION OF TAXES DURING MUTUAL AGREEMENT PROCEDURE
Having
regard to the hardship faced by the taxpayers during the pendency of a mutual
agreement procedure, the Competent Authorities of India and the United. States
under the Convention for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income (the “Convention”) have
determined and agreed that efficient processing of Mutual Agreement Procedure (“MAP”)
cases will be facilitated by deferring assessment or suspending collection of
any amounts of tax, including also any related interest or penalties, for any
taxable years which are the subject of MAP proceedings.
WHEREAS:
(A)
The Competent Authorities have arranged and desired to agree that with regard
to amounts of taxes covered under Article 2 of the Convention and potentially
payable to the government of the United States, the Internal Revenue Service
will either defer assessment or suspend collection proceedings pursuant to its
published procedures regarding MAP proceedings (currently set forth in Rev.
Proc. 2002-52 or any successor procedure), until putting into effect a mutually
agreed disposition of the MAP proceedings concerning the amounts in question;
and
(B)
The Competent Authorities have arranged and desired to agree that with regard
to amounts of taxes covered under Article 2 of the Convention and potentially
payable to the government of India, the Assessing Officer will suspend
collection until putting into effect a mutually agreed disposition of the MAP
proceedings concerning the amounts in question.
NOW
THEREFORE, in consideration of the premises, covenants and conditions herein
contained and in implementing this arrangement:
IT
IS HEREBY AGREED between the Competent Authorities as follows:
(1) The tax
authorities of India and the United States shall retain the right to demand
security in appropriate cases, as deemed fit and necessary to avoid prejudicing
the interests of their respective governments.
(2) In
India, as security, a taxpayer shall provide an irrevocable Bank Guarantee
issued by any scheduled bank, or by an Indian branch of a foreign bank approved
by the Reserve Bank of India to carry out banking business in India, as per
annexure 'A' to this Memorandum.
(3) In the
United States, as security, a taxpayer shall, upon demand, provide an
irrevocable Letter of Credit issued by a United States bank that is a of the
Federal Reserve system, or by a United States branch or agency of a foreign
bank that is on the National Association of Insurance Commissioners list of
banks from which a Letter of Credit may be accepted.
(4) The
amount, if any, for which security is demanded under paragraph (2) or (3)
above, as the case may be, shall not exceed the amount of additional tax
proposed or demanded by the tax authority requiring the security [aggregated
for all the period(s) pending before the Competent Authorities), as adjusted by
the Assessing Officer in accordance with domestic laws, and subject" to
further adjustment for interest on these amounts calculated at the statutory
rate on non-payments.
(5) Collection
and assessment (if applicable] of any interest or penalty levied from the
concerned taxpayer, in relation to amounts suspended from collection or
deferred from assessment (if applicable) under this Agreement, shall also be
suspended.
(6) The
amounts of tax(es) identified under Recitals (A) and (B) above, shall include
but are not limited to:
(i) Tax demands that have arisen as a result of
tax audit or appeal proceedings pending at the time of this agreement.
(ii) Tax demands, as a result of a tax assessment
or re-assessment proceeding, or a tax appeal; or on a review by a Commissioner
of Income Tax of an assessment (or re- assessment) proceeding on the grounds
that it is prejudicial to the interests of the revenue that could arise
subsequent to this agreement.
(iii) Withholding tax on income or other similar
advance taxes that are the subject of MAP proceedings for prior, current or
future taxable years.
(7) The
Competent Authorities shall endeavour to either resolve or close the case
within a period of two years from the date on which one Competent Authority
notifies the other that the application from the Taxpayer(s) for assistance
under the MAP has been received.
(8) Any
draw-down upon a Bank Guarantee or Letter of Credit referred to in paragraph
(2) or (3) above will be authorised only after notice by one Competent
Authority to the other.
(9) In the
event of a lapse of security under paragraph (2) or (3), the taxpayer shall be
permitted to substitute another form of security under such paragraph, provided
such substitution takes effect not less than 30 days prior to the lapse of the
prior security. Such substitution will relieve the bank which provided the
first Bank Guarantee or Letter of Credit from its obligations to the concerned
Government of India or the United States under that first security.
(10) The terms
of this Memorandum may be reviewed by the Competent Authorities at any time in
the future upon the request of either party.
ANNEXURE A
To,
The
President of India acting through and represented by
[Designation],
Income Tax Department,
Ministry
of Finance, Government of India, New Delhi
Bank
Guarantee
Bank
Guarantee as security for keeping the recovery of tax demand in abeyance during
the pendency of a Mutual Agreement Procedure ("MAP")
[Applicable
in case of non-resident assessees, and Indian companies and other entities
affiliated with United States companies, who have invoked the Mutual Agreement
Procedure] This Deed of Bank Guarantee made this___ day of___, 20__, by
[INSERT
name and address of Guaranteeing Bank] (hereinafter called "the
Bank", which expression shall, unless excluded by or repugnant to the
context, include its successors and assignees) to the President of India acting
through and represented by [Designation], Income Tax Department, Ministry of
Finance, Government of India, New Delhi (hereinafter called "the
Government").
WHEREAS
the Government has agreed that—[INSERT name, address, permanent acccount number
of the Assessee]_ (hereinafter called "the Assessee", which
expression shall, unless excluded by or repugnant to the context, include its
successors and assignees) shall furnish a Bank Guarantee in respect of a demand
of Rs.___[INSERT Amount of Tax in dispute]_ for the assessment year(s)___, in
lieu of which the recovery of any part of such demand shall not be enforced
until 30 days after the Assessing Officer receives written notice of the MAP
Agreement between the Competent Authorities of the Governments of India and the
United States, and the Assessee will not be treated as in default for the above
assessment year(s); AND WHEREAS THE Bank has at the request of the Assessee
agreed to execute these presents:
NOW
THEREFORE THIS DEED WITNESSES AS FOLLOWS
In
consideration of the Government agreeing to treat the Assessee as not in
default for Rs. _[INSERT Amount of Tax in dispute, plus interest specified in
paragraph (1) below]_ for the assessment year(s)___,
(1) The
Bank irrevocably guarantees and undertakes, for the term provided in paragraph
(2) below, that the Bank shall indemnify and keep indemnified the Government to
the extent of the said sum of Rs. _[INSERT Amount of Tax in dispute]_ (Rupees
_[written text]) and interest accruing at the rate specified in the Income-tax
Act of 1961 as amended from time to time, for non-payment of taxes on this
amount after _[INSERT date from which recovery could otherwise be made]_ or any
amount as adjusted by the order of the Assessing Officer which may be passed
after the furnishing of the guarantee. On advice from the Government that the
Assessee has failed and neglected to observe any of its obligations to the
Government with regard to the terms and conditions of the agreements between
the Assessee and the Government that may underlie this Bank Guarantee, the
decision of the Government as to whether any amount should be paid out by the
Bank to the Government hereunder shall be final and binding.
(2) The
Bank further agrees that the guarantee herein contained shall remain in full
force and effect for a period of 3 years from the date hereof, i.e., till
_[INSERT date] ; and further agrees to renew this guarantee for another 3 years
on the following terms: the Bank will provide the Government with written
notice no later than 60 days prior to the expiration date of this Bank
Guarantee if the taxpayer has not renewed the agreements between the Assessee
and the Bank that underlie this Bank Guarantee for an additional period of 3
years. If the Government does not receive a renewal of this Bank Guarantee or a
substitute Bank Guarantee for the amounts of tax and interest in dispute prior
to 30 days before the expiration date of this Bank Guarantee, the Government
may instruct the Bank to pay the guaranteed amounts prior to expiration of the
Bank Guarantee. Provided further that, notwithstanding any other things
contained herein, the liabilities of the Bank shall be limited to the maximum
of the guaranteed amount of Rs._[INSERT amount of tax in dispute]_
(Rupees___[INSERT written text]___), as increased by interest pursuant to
paragraph (1) during the term of this Bank Guarantee; and unless a claim in
writing is lodged with the Bank, or action to enforce the claim under the
guarantee is filed or initiated against the Bank, within six months from the
date of expiry of the guarantee period fixed hereunder or where such period is
extended under the terms of this guarantee from the date of such extended
period as the case may be, all the rights of the Government under this
guarantee shall be forfeited and the Bank shall be relieved and discharged from
liabilities hereunder.
(3) The
obligations of the Bank to the Government under this Bank Guarantee will
terminate upon the occurrence of any of the following for the taxable years in
question:
(i) the payment by the Bank or the Assessee to
the Government of the guaranteed amounts;
(ii) the payment by the Assessee to the Government
of all amounts owed, as agreed to by the Competent Authorities in a MAP
Agreement;
(iii) a MAP Agreement by the Competent Authorities
that the Government will not seek to recover any part of the
previously-demanded amounts; or
(iv) the Assessee furnishes to the Government
similar security from another Bank.
(4) The
guarantee herein contained shall not be discharged or affected by any change in
the constitution either of the Assessee or of the Bank.
(5) The
Government shall have the fullest liberty without affecting the guarantee to
postpone for any time, or from time to time, any of the powers exercisable by
it against the Assessee, or to either enforce or forbear any of the terms and
conditions under this guarantee or under the Income Tax Act and Income Tax
Rules, and the Bank shall not be released from its liabilities under this
guarantee by any exercise by the Government of the liberty with reference to
the matter aforesaid or by reasons of time being given to the Assessee, or by
any other act of forbearance or enforcement on the part of the Government, or
by any indulgence by the Government to the Assessee, or by any other matter or
thing whatsoever which under the law relating to sureties would but for these
provisions have the effect of so releasing the Bank from its such liability.
The Bank hereby agrees and undertakes that any claim which the Bank may have
against the Assessee shall be subject and subordinate to the prior payment and
performance in full of all the obligations of the Bank hereunder and the Bank
will not without prior written consent of the Government exercise any legal
rights or remedies of any kind in respect of any such payment or performance so
long as the obligations of the Bank hereunder remain owing and outstanding,
regardless of the insolvency, liquidation or bankruptcy of the Assessee or
otherwise howsoever. The Bank will not counter claim or set off against its
liabilities to the Government hereunder any sum outstanding to the credit of
the Government with it.
(6) This
Bank Guarantee shall be governed by and construed in accordance with the laws
of the Republic of India (without regard to its principles of conflict of
laws).
(7) The
Bank undertakes not to revoke this Guarantee during its currency except with
the previous consent of the Government in writing.
(8) Notwithstanding
anything stated above, liability of the Bank under this guarantee is restricted
to Rs._[INSERT Amount of Tax in dispute, plus interest specified in paragraph
(1) above] (Rupees_[written text]) and is valid for the period(s) described in
paragraph (2) above. Unless a demand or claim under this guarantee is lodged
with the Bank on or before _[INSERT date, as established in paragraph (2)
above]_, all rights of the Government under the said guarantee shall be
forfeited and the Bank shall be relieved and discharged from all liabilities
thereunder whether or not this document shall have been returned to the Bank.
IN
WITNESS WHEREOF, the Bank, through its duly authorized representative, has set
its hand stamp on this …….Day of …….at …….
Witness
For and on Behalf of the Bank
(Signature)
(Designation with Bank Stamp)
Name
(Attorney as per power of Attorney No…….)
Date
Bank Guarantee as security for keeping the recovery of tax demand in abeyance during the pendency of a Mutual Agreement Procedure (MAP) [CBDT Instruction No. 3/2004, Dated 19.03.2004]
[Applicable
in case of non-resident assessees, and Indian companies and other entities
affiliated with United Kingdom companies, who have invoked the Mutual Agreement
Procedure]
This
deed of Bank Guarantee made this.......day of........, 20...., by .........
[Insert name and address of Guaranteeing Bank] (hereinafter called "the
bank", which expression shall, unless excluded by or repugnant to the
context, include its successors and assignees) to the President of India acting
through and represented by [Designation], Income-tax Department, Ministry of
Finance, Government of India, New Delhi (hereinafter called "the
Government").
Whereas
the Government has agreed that........ [Insert name, address, permanent account
number of the assessee]. . . . (hereinafter called “the assessee”, which
expression shall, unless excluded by or repugnant to the context, include its
successors and assignees) shall furnish a Bank Guarantee in respect of a demand
of Rs. . . . . [insert Amount of tax in dispute]. . . . for the assessment
year(s). . . . ., in lieu of which the recovery of any part of such demand
shall not be enforced until 30 days after the Assessing Officer receives
written notice of the MAP Agreement between the Competent Authorities of the
Governments of India and the United Kingdom, and the assessee will not be
treated as in default for the above assessment year(s);
And
whereas the Bank has at the request of the assessee agreed to execute these
presents :
Now
therefore this deed witnesses as follows :
In
consideration of the Government agreeing to treat the assessee as not in
default for Rs.................... [Insert Amount of tax in dispute, plus
interest specified in paragraph (1) below]. . . for the assessment year(s). . .
. . . . . . . . . . . . . . .,
(1) The Bank irrevocably guarantees and
undertakes, for the term provided in paragraph (2) below, that the bank shall
indemnify and keep indemnified the Government to the extent of the said sum of
Rs. . . . . [Insert Amount of tax in dispute]... (Rupees. . . [written text])
and interest accruing at the rate specified in the Income-tax Act, 1961 as
amended from time to time, for non-payment of taxes on this amount after . . .
. . . [Insert date from which recovery could otherwise be made]. . . . or any
amount as adjusted by the order of the Assessing Officer which may be passed
after the furnishing of the guarantee. On advice from the Government that the
Assessee has failed and neglected to observe any of its obligations to the
Government with regard to the terms and conditions of the agreements between
the Assessee and the Government that may underlie this Bank Guarantee, the
decision of the Government as to whether any amount should be paid out by the
Bank to the Government hereunder shall be final and binding.
(2) The Bank further agrees that the guarantee
herein contained shall remain in full force and effect for a period of 3 years
from the date hereof, i.e., till . . . . . . [Insert date]; and further agrees
to renew this guarantee for another 3 years on the following terms : the Bank
will provide the Government with written notice no later than 60 days prior to
the expiration date of this Bank Guarantee if the taxpayer has not renewed the
agreements between the Assessee and the Bank that underlie this Bank Guarantee
for an additional period of 3 years. If the Government does not receive a
renewal of this Bank Guarantee or a substitute Bank Guarantee for the amounts
of tax and interest in dispute prior to 30 days before the expiration date of
this Bank Guarantee, the Government may instruct the Bank to pay the guaranteed
amounts prior to expiration of the Bank Guarantee. Provided further that,
notwithstanding any other things contained herein, the liabilities of the Bank
shall be limited to the maximum of the guaranteed amount of Rs. ...... [Insert
amount of tax in dispute] (Rupees. . . [Insert written text]. . .), as
increased by interest pursuant to paragraph (1) during the term of this Bank
Guarantee; and unless a claim in writing is lodged with the Bank, or action to
enforce the claim under the guarantee is filed or initiated against the Bank,
within six months from the date of expiry of the guarantee period fixed
hereunder or where such period is extended under the terms of this guarantee
from the date of such extended period as the case may be, all the rights of the
Government under this guarantee shall be forfeited and the Bank shall be
relieved and discharged from liabilities hereunder.
(3) The obligations of the Bank to the Government
under this Bank Guarantee will terminate upon the occurrence of any of the
following for the taxable years in question :
(i) the payment by the Bank or the Assessee to
the Government of the guaranteed amounts;
(ii) the payment by the Assessee to the Government
of all amounts owed, as agreed to by the Competent Authorities in a MAP
Agreement;
(iii) a MAP Agreement by the Competent Authorities
that the Government will not seek to recover any part of the
previously-demanded amounts; or
(iv) the Assessee furnishes to the Government
similar security from another Bank.
(4) The guarantee herein contained shall not be
discharged or affected by any change in the constitution either of the Assessee
or of the Bank.
(5) The Government shall have the fullest liberty
without affecting the guarantee to postpone for any time, or from time to time,
any of the powers exercisable by it against the Assessee, or to either enforce
or forbear any of the terms and conditions under this guarantee or under the
Income-tax Act and Income-tax Rules, and the Bank shall not be released from
its liabilities under this guarantee by any exercise by the Government of the
liberty with reference to the matter aforesaid or by reasons of time being given
to the Assessee, or by any other act of forbearance or enforcement on the part
of the Government, or by any indulgence by the Government to the Assessee, or
by any other matter or thing whatsoever which under the law relating to
sureties would but for these provisions have the effect of so releasing the
Bank from its such liability. The Bank hereby agrees and undertakes that any
claim which the Bank may have against the Assessee shall be subject and
subordinate to the prior payment and performance in full of all the obligations
of the Bank hereunder and the Bank will not without prior written consent of
the Government exercise any legal rights or remedies of any kind in respect of
any such payment or performance so long as the obligations of the Bank
hereunder remain owing and outstanding, regardless of the insolvency,
liquidation or bankruptcy of the Assessee or otherwise howsoever. The Bank will
not counter claim or set off against its liabilities to the Government
hereunder any sum outstanding to the credit of the Government with it.
(6) This Bank Guarantee shall be governed by and
construed in accordance with the laws of the Republic of India (without regard
to its principles of conflict of laws).
(7) The Bank undertakes not to revoke this
Guarantee during its currency except with the previous consent of the
Government in writing.
(8) Notwithstanding anything stated above,
liability of the Bank under this guarantee is restricted to Rs. .........
[Insert Amount of tax in dispute, plus interest specified in paragraph (1)
above] (Rupees. . . [written text]) and is valid for the period(s) described in
paragraph (2) above. Unless a demand or claim under this guarantee is lodged
with the Bank on or before. . . [Insert date, as established in paragraph (2)
above]. . ., all rights of the Government under the said guarantee shall be
forfeited and the Bank shall be relieved and discharged from all liabilities
thereunder whether or not this document shall have been returned to the Bank.
In
Witness Whereof, the Bank, through its duly authorized representative, has set
its hand stamp on this....... day of..........at..................
Witness
for and on behalf of the Bank
(Signature)
(Designation with Bank Stamp)
Name
(Attorney as per Power of Attorney No.........)
Date
CBDT
Instruction No. 12, dated 01.11.2002
Subject : Section 90
of the Income-tax Act, 1961 – Mutual Agreement Procedure for Double Taxation
Avoidance Convention Procedure- regarding.
The
Double Taxation Avoidance Conventions (DTAC) are entered into by the Government
of India with various countries for the purpose of avoiding double taxation of
income and also fiscal evasion. These Conventions (hereinafter referred to as
Treaties) lay down a Mutual Agreement Procedure under respective Articles for
resolving difficulties arising out of the application of the convention.
2.
It is normally open to the tax payer to litigate any matter before the
appellate authority after an order is served on him and the litigation may
proceed as per the provisions of the Income Tax Act. However, the Treaty also
provides that the taxpayer may approach the Competent Authority of the
Contracting State of which he is a resident where he feels that the order is
not in accordance with the terms of the Treaty. Thus, the Mutual Agreement Procedure
is a special procedure which originates from Section90 of the It Act read with
the relevant provisions of the applicable Treaty.
3.
It is also important to note that the Mutual Agreement Procedure, unlike the
other appellate procedure contained in the Income Tax Act, can be initiated by
a tax payer without waiting for the final order of the Assessing Officer. To be
able to initiate the procedure, he has to only establish that the action of one
of the contracting state will result in a taxation which, according to him,
would not be in accordance with the provisions of the convention. The assessee
can also initiate this procedure after receipt of the assessment order, during
the course of appellate proceedings or even during the stage of subsequent
appellate proceedings. A Treaty, however, normally lays down a time limit
within which such request may be presented before the Competent Authority.
4.
The provisions contained in Section90 of the Income Tax Act, 1961 provide that
where the Central Government has entered into an agreement with the Government
of any country outside India for granting relief of tax or for avoidance of
double taxation, the provisions of the Income Tax Act shall apply only to the
extent they are more beneficial to the assessee.
5.
Instances have come to notice of the Government where the tax payers have been
aggrieved due to difficulties in getting the decisions arrived at under MAP
implemented. Since these provisions are not frequently administered, there
appears to be lack of understanding in certain quarters with regard to the
procedures involved in the implementation of these provisions. Needless to
mention such situations arising in the field formation cause serious
embarrassment to the Government vis- -vis our treaty partners.
6.
Therefore, it is essential that Income Tax authorities keep this perspective in
mind while applying the provisions of the Treaty and circumstances under which
the MAP is invoked and finally the manner in which the agreement, if any,
arrived at by the Competent Authorities under the treaty provisions needs to be
implemented. In this regard, the following aspects need to be borne in mind:
(a) Under the provisions of the Income
Tax Act, the treaty provisions override the domestic law if these are more
beneficial to the assessee.
(b)
Article
on Mutual Agreement Procedure in our respective treaties does give an option to
the tax-payer of India as also of other countries to approach the respective
Competent Authorities if he is aggrieved by the action of the tax authorities
which, according to him are not in accordance with the provisions of the
treaty.
(c)
The
Treaty provides for a well-laid procedure to resolve the case by
mutualagreement in terms of the provisions stipulated therein. As per the
procedure followed in the Ministry, such agreements are first arrived at the
level of Competent Authorities, then these are put up to the Chairman of the
CBDT for his approval before these are communicated to the field authorities.
(d) The time limits or the procedures
laid down under the Income Tax Act will not restrict the application of the
treaty provisions or the implementation of the agreement arrived at by the
Competent Authorities.
7.
After careful consideration of these issues it has been decided that once the
Competent Authority communicates the decision to the Chief
Commissioner/Director General in respect of any taxpayer, the effect shall be
given to the decision of the Authority treating it as a part of provision of
the Treaty itself as applicable to the particular case of the applicant. In
order to give effect to the decisions under MAP the A.O. may have to deal with
any one of the following situations: -
(i)
In
case where the assessee refuses to accept the decision under MAP, the Assessing
Officers or the appellate authorities shall proceed with the assessment or the
appellate proceedings as the case be, as if there were no MAP agreement in the
case after taking into account the provision of law as well as all the
circulars/instructions and respective provisions of the Treaty applicable to
such cases.
(ii)
Where
the assessment proceedings are pending:-
This
will be one of the simplest cases for giving effect to the decisions. The
Assessing Officer will give effect to the decision arrived at under MAP while
completing the assessment irrespective of the fact that a different view has
been taken in the preceding years. However, the tax-payer shall be required to
give an acceptance of the decisions under MAP and he will not have any right to
appeal under any of the provisions of the I.T Act against the issues so decided
once he accepts it. Therefore, an undertaking to this effect, has to be
obtained from the assessee under signature of a person authorised to sign the
return before giving effect to the decision under MAP. Moreover, while
completing the assessment, the facts of MAP proceedings, decisions taken under
MAP and also the fact that assessee has given an undertaking to abide by such
decision and not to file appeal may be expressly mentioned in the order. The
order shall be passed under section 143(3) read with sections 90(2) of the IT
Act and the relevant Article of the Treaty.
(iii) Where the appeals are pending before the
CIT(A):-
In
cases where the assessments have been completed and the assessee has filed an
appeal before the CIT(A), the A.O. shall give effect to the decision and bring
such facts to the notice of CIT(A). The A.O. shall also obtain an undertaking
from the assessee regarding withdrawal of appeal on the issues on which
decisions under MAP has been received. The assessee shall also undertake not to
agitate the decision under MAP any further. There may be cases where the
decision under MAP may require the AO to re-compute the income after
incorporating certain findings (like guidelines regarding attribution of income
to and deduction of expenses on PE). In such cases, re-computation of income
shall be carried out by the A.O by passing an order under section 143(3) read
with section 90(2) and the respective Article of the DTAC.
It
is also important to note that once the decision under MAP has been accepted by
the assessee and he has withdrawn his ground of appeal relating thereto, there
will be no grounds of appeal pending before CIT(A). CIT(A) may, however
adjudicate upon other issues of consequential nature, if any, arising out of
the MAP decision e.g. item or quantum of income or expenses attributable or
distributable to the PE to the extent they have not been decided under MAP.
(iv) Where
the appeal has been decided by the CIT(A) but the appeal is pending with the
ITAT:-
In
such cases, the assessment order u/s 143(3) would have been revised u/s 250 as
per the directions of the CIT(A). The MAP decision may give certain relief to
the assessee. Such relief is to be read as if provided under the Act and
accordingly the order u/s 250 will have to be revised by the A.O. as per the
provisions of sub section90 (2) read with relevant Article of the DTAC relating
to MAP after incorporating the relief allowed under MAP. However, this will be
carried out only after the assessee withdraws his appeal from the ITAT on the
points on which the decisions has been arrived at under MAP. Similarly, in
cases where department has filed an appeal before the ITAT, the same shall also
be withdrawn on the issues which have been decided under MAP.
8.Thus,
the effect to the order under MAP shall be given subject to:-
The
acceptance of the agreement by the assessee, and Assessee's withdrawal of the
pending appeal or the grounds of appeal concerning the points settled in the
mutualagreement between the Competent Authorities.
9.
These instructions are being issued with the approval of the Central Government
in terms of Section 90 and the Article relating to Map incorporated in
respective Treaties entered into by India with other countries.
10.
These instructions may be brought to the notice of all the officers working in
your region / charge.
McKinsey
not taxable for statistical & qualitative inputs as FTS or business income
Mumbai ITAT holds that income from borrowed
services earned by McKinsey Sinagpore (Assessee) from McKinsey
India by providing certain data, information and other support, is
not in the nature of Fees for Technical Services (FTS); Opines that “borrowed
services from the assessee which is predominantly in the nature of provision of
statistical or qualitative inputs cannot by any stretch of imagination be
regarded as being in the nature of FTS under Article 12 of the Treaty”;
ITAT further observes that the end product delivered to the client by McKinsey
India itself is not in the nature of FIS/ FTS; Relies on the
co-ordinate bench ruling in Assessee’s own case for Assessment year
2011-12 to observe that the said income shall be classified as business
income liable to tax under Article 7 of the India-Singapore DTAA, however in
the absence of the permanent establishment (PE) in India, the borrowed service
charge received would not be taxable in India; Notes that in the Mutual
Agreement Procedure (MAP) in the case of McKinsey India from Assessment year
2002-03 to 2013-14, it was consistently held that the borrowed service charges
cannot be constitute as FIS under Article 12 of the India-US DTAA; Relies on
Bangalore ITAT ruling in Dell International Services India (P)
Ltd. v. DCIT (IT (TP) A No. 1302/Bang/2010) and co-ordinate bench ruling in J.P.
Morgan Services (P) Ltd. v. DCIT (45 CCH 543), wherein it was held that where the facts of the
transactions with the non-US incorporated AEs were similar to the facts of
the transactions with US incorporated AEs, the MAP resolution should also apply
to the Non-US incorporated AEs; Thus, opines that on principles, MAP order
in case of McKinsey India (for Assessment years 2002-03 to 2013-14) should be
followed in the present case; Assessee, part of McKinsey group of entities
and a Singapore based Company, received Rs. 9.21 Cr, for Assessment year
2012-13, from its Indian AE (McKinsey India) for provision of borrowed services
in the nature of strategic consultancy services; Assessee did not offer the
same to tax in India, on the premise that the said services were performed
outside India and since the Assessee has no PE in India, the incidence of tax
does not arise in India; Revenue dismissed Assessee’s claim and treated the
income from provision of borrowed services to its Indian AE to be taxable in
India as FTS and accordingly made the addition; CIT(A) deleted the addition,
against which the Revenue preferred the present appeal; ITAT takes note of
co-ordinate bench rulings in Assessee’s own cases from Assessment year 1999-00
to 2011-12, wherein it was consistently held that the income from borrowed
service charges is not taxable under the India-Singapore DTAA; Notes Assessee’s
contention that once a set of facts and legal position has been accepted by the
Revenue the income tax authority cannot deviate from the past position and take
a contrary view, by relying on Supreme Court ruling in Radhasoami
Satsang v. CIT (1992) 193 ITR 321 : 60 Taxman 248 : (1991 ) 100 CTR 267 (SC); [In favour of assessee] (Related
Assessment years : 2012-13, 2014-15 and 2015-16) – [JCIT v. McKinsey & Company Singapore Pte Ltd. [TS-622-ITAT-2023(Mum)]
– Date of Judgement : 28.09.2023 (ITAT
Mumbai)]
Pakistan Supreme Court taxes ‘right to use’ software as Royalty; Endorses MAP as alternative remedy
The Company, Inter Quest
Informatics Services (‘taxpayer’) was incorporated in the
Netherlands. The taxpayer had entered into an agreement dated 01.02.1986
(‘the
1986 Agreement’) for the lease of ‘FLIC tapes’ (‘software
programs’) and a ‘Software Rental Agreement’ dated 01.01.1995, for
use in oilfield data processing and log interpretation to a company
called Schlumberger Seaco Inc. (‘the lessee’) having its place of
business in Pakistan. The taxpayer filed tax returns for consecutive
assessment years from 1987 to 2003 whereby the rentals received in lieu of
the lease of software programs were treated as business profits by the
taxpayer and, accordingly, claimed to be exempt from tax in Pakistan under
Article 7 of the Double Taxation Avoidance Agreement entered between the
Kingdom of the Netherlands and the Islamic Republic of Pakistan (‘Pakistan-Netherlands
DTAA’) in the absence of any permanent establishment (‘PE’)
in Pakistan.
The
said returns (fourteen in no.) were picked up for detailed scrutiny, and the
tax officer imposed a tax on the income from software programs by alleging the
said payments were royalty receipts and thus liable to be taxed under Article
12 of the Pakistan-Netherlands DTAA. Being aggrieved, the taxpayer preferred
appeals before the Commissioner of Income Tax (Appeals) followed by an appeal
before the Income Tax Appellate Tribunal (collectively referred to as
‘authorities’), whereby the authorities held the payments to be royalty income
and directed the taxpayer to pay tax @ 15% as per Article 12 of the
Pakistan-Netherlands DTAA. Being aggrieved, the taxpayer preferred an appeal
before the High Court whereby the High Court held the payments received for the
leasing of software programs did not constitute royalty under Article 12 of the
Pakistan-Netherlands DTAA. While arriving at the decision, the High Court
relied upon the Article 12 of the Organisation for Economic Co-operation and
Development Model Convention (‘OECD MC’) and its interpretation by
Klaus Vogel on Double Taxation Conventions. [In favour of revenue] – [Commissioner of Income Tax
v. Inter Quest Informatics Services [TS-716-FC-2023]
– Date of Judgement : 08.09.2023 (SC)]
NOTE
In the Indian context, in Geoquest
Systems B.V. [TS-5024-AAR-2010-O], having similar facts, the AAR bench held
that the amount paid did not constitute royalty. The Hon’ble Apex Court of
India, in the case of Engineering Analysis Centre of Excellence (P) Ltd.
[TS-106-SC-2021] upheld the said AAR decision.
It is pertinent to note that the issue of
software taxability is a highly litigative issue, and though the Hon’ble Apex
Court in the matter of Engineering Analysis Centre of Excellence (P) Ltd.
held the software program is not taxable as royalty; however, the review
petition is pending for reconsideration.
Dismisses
Assessee’s SLP for waiver of interest under Section 220(2A); Rejects MAP
resolution plea
The issue involved in the present Special
Leave Petition is with respect to the waiver of
interest under Section 220(2A) of the Income Tax Act, 1961.
Supreme Court
dismisses Assessee’s SLP, upholds High Court order denying
waiver of interest charged under Section 220(2); Rejects Assessee’s
plea that its dispute was pending for resolution under Mutual Agreement
Procedure (MAP) which got culminated subsequently and the tax liability arose
thereafter, therefore, interest shall be waived under Section
220(2A)(ii); Supreme Court remarks, “Merely raising the dispute
before any authority cannot be a ground not to levy the interest and/or waiver
of interest under Section 220(2A) of the Act. Otherwise each and every
assessee may raise a dispute and thereafter may contend that as the assessee
was bona fidely litigating and therefore no interest shall be leviable.”;
Pursuant to rejection of application for waiver of interest on the ground of
financial hardship, Assessee, a US-based company with a branch in
India, filed a writ petition challenging the CIT order; High Court upheld
CIT order on the basis that that CIT had correctly held that mere
fact that the interest was 1.5 times the tax by itself was irrelevant for
determining whether assessee was suffering from any genuine hardship; Supreme
Court observes that under Section 220(2), the levy of simple interest on
non-payment of the tax is mandatory and dismisses the SLP. [In favour of
revenue] – [Pioneer Overseas Corporation USA (India Branch) v. CIT (International
Taxation) [TS-902-SC-2022] – Date of Judgement : 02.11.2022 (SC)]
Supreme
Court of Spain denies MAP under Spain-Germany DTAA as GAAR triggers
The issue
before the Court
The issue
before the Supreme Court of Spain inter alia was whether the
taxpayer could access MAP in cases where GAAR is triggered as per Article 24(1)
of the tax treaty?
The
decision of the
Court
The Spanish
Supreme Court observed and held as follows:
§ The Spanish regulation on MAP specified that the
MAP request might be justifiably denied, amongst others, in the following
cases:
•
When it is
a matter of domestic law and not a divergence or discrepancy in applying the
tax treaty.
•
When there
is evidence that the action of the taxpayer was to avoid taxation in any of the
Contracting States.
§ Paragraph 9.5 of commentary to Article 1 of OECD Model
Tax convention ('MTC') explicitly provides a guiding principle that
the benefits of a double taxation convention should not be available where the
main purpose for entering into certain transactions or arrangements was to
secure a more favourable tax position and obtaining that more favourable
treatment in these circumstances would be contrary to the object and purpose of
the relevant provisions;
§ Article 28(1) of the tax treaty specifically
provides that the tax treaty shall not be interpreted to mean that a
Contracting State (i.e. Spain in the instant case) is prevented from applying
its domestic legal provisions in cases of tax evasion or tax avoidance.
In light of
the above discussion, the Supreme Court held that MAP requests could not be
permitted in tax abuse cases. [In favour of revenue] – [SGL Carbon Holding
S.L [TS-1079-FC-2021(SPN)] – Date of Judgement :
22.09.2021 (Foreign Court Spain)]
Dismisses writ; Penalty proceedings can be initiated even if dispute resolved by enforcement of MAP; Concealment penalty imposed on TP-adjustment determined under MAP, not ultra-vires
ISSUE
Whether
concealment penalty could be levied on a TP adjustment made pursuant to MAP
resolution?
And
whether the concealment penalty in respect of addition made pursuant to MAP
resolution under Indian tax law, is ultra vires the Constitution of India?
Karnataka High Court upholds constitutional validity of Section
271(1)(c) in so far as imposing concealment penalty on TP-adjustment determined
under MAP proceedings; Notes that pursuant to resolution of TP-issue under
MAP, Assessing Officer completed assessment in terms of Rule 44H(4)/(5) and
then proceeded to impose penalty of Rs. 30.89cr in respect of TP-adjustment of
Rs. 91.80cr (determined under MAP) on the ground that assessee had concealed
income within the meaning of Explanation 7 to Section 271(1)(c); Noting that
the MAP resolution was silent on the aspect of penalty imposition, High Court
opines that unless a specific provision is made in the Double Taxation
Avoidance Agreement in as much as penalty is concerned, the provisions of
Section 271(1)(c) of the Act shall continue to apply”; Further, clarifies that
Merely for the reason that Article 253 of the Constitution of India provides
for enacting any law for implementing any agreement, treaty or
convention with foreign countries and Section 90 is engrafted to avoid Double
Taxation it cannot be held that Section 271(1)(c) of the Act is ultravires the
constitution as far as levy of penalty subsequent to passing of the order under
Section 44(G) and (H) of the Rules”; High Court also observes that Rule 44H(5)
makes it clear that the amount of tax, interest or penalty already determined
shall be adjusted after incorporating the decision taken under the MAP in the
manner provided under the Act/ Rules to the extent that they are not contrary
to the MAP resolution arrived at; Further, stressing that penalty proceedings,
though emanating from assessment proceedings, is a self-contained code, High Court
rules that Merely alternative dispute resolution has been opted by the
assessee, it would not invalidate the penalty proceedings unless it has been
considered, analyzed and a decision is arrived at by the two sovereign States
under the MAP”; Also states that onus lies on the assessee to establish
that the said addition now finally decided by MAP is not due to concealment of
income or furnishing of inaccurate particulars and moreover, the computation
was made under Section 92C in the manner prescribed under that Section, in good
faith and with due diligence”, however, clarifies that Explanation 7 would
not empower the concerned authorities to levy penalty automatically for such
transactions without application of mind; Relies on various rulings including
Karnataka High Court division bench ruling in Manjunatha Cotton and Ginning and
Supreme Court rulings in R. M. Muthaiah, Azadi Bachao Andolan [TS-5-SC-2003],
Infrasoft, K.C. Builders etc. [In favour of revenue] – [Toyota Kirloskar
Motor (P) Ltd. v. Union of India [TS-388-HC-2019(KAR)]
– Date of Judgement : 11.06.2019
(Karn.)]
Relies
McKinsey’s earlier years' MAP settlement to determine taxability in subsequent
year
Mumbai ITAT
holds that taxability of Rs. 150 cr. received by assessee-company (part of the
Mckinsey Group based in US) in India during Assessment years 2011-12 and 2012-13
shall be determined as per the MAP settlement for earlier years; Notes that as
per the terms of MAP settlement for Assessment years 2008-09
to 2009-10, it was agreed that payment for providing various consultancy
services (including Knowledge Pool Charges, Borrowed Service Charges, Firm
Committee Pool Charge, Regional Corporate Finance Charges etc.) to its AE
shall not be taxable in India as ‘Royalty’ or ‘Fees for Included Service (‘FIS’)’;
ITAT rejects Revenue's stand that the MAP settlement being year-specific,
cannot be made applicable to subject assessment years; Notes that the MAP
settlement is with respect to amount paid by Mckinsey India to other Mckinsey
entities in USA; Relies on co-ordinate bench rulings in assessee’s own
case and in case of its group companies which accepted for applying the MAP
terms of earlier years. (Related Assessment year : 2011-12 & 2012-13) – [McKinsey
& Company v. DCIT (International Taxation) [TS-129-ITAT-2018(Mum)]
– Date of Judgement : 14.03.2018 (ITAT
Mumbai)]
Mere outsourcing business to
Indian subsidiary cannot create PE; MAP agreement for earlier year cannot be
considered as precedent for subsequent years
Supreme Court dismisses Revenue's appeal, confirms Delhi High Court
ruling holding that 2 US-based entities viz. eFunds Corporation USA and
eFunds IT Solutions Group Inc., USA (assessees) did not have a fixed place PE,
a service PE or an agency PE in India for Assessment years 2000-01 to 2002-03
and 2004-05 to 2007-08; Supreme Court observes that the burden of proving the
fact that a foreign assessee has a PE in India and must, therefore, suffer tax
from the business generated from such PE is initially on the Revenue ;
Regarding constitution of fixed place PE, observes that 'The assessing officer,
CIT (Appeals) and the ITAT have essentially adopted a fundamentally erroneous
approach in saying that they were contracting with a 100% subsidiary and were
outsourcing business to such subsidiary, which resulted in the creation of a PE;
Relies on Supreme Court ruling in Formula One for interpretation of
fixed-place PE rule; Rejects Revenue’s reliance on US Securities and Exchange
Commission Report in Form 10K as misplaced as it spoke about e-Funds group of
companies worldwide as a whole, holds that no part of the main business
and revenue earning activity of assessees was carried on through a fixed
business place in India which has been put at their disposal; Observes
that 'the Indian company only renders support services which enable
the assessees in turn to render services to their clients abroad. This
outsourcing of work to India would not give rise to a fixed place PE.';
Regarding Service PE constitution through employees seconded by assessees to
Indian entity for Assessment year 2005-06, Supreme Court notes that none of the
customers of assessees had received services in India and only auxiliary
operations were carried out in India, thus holds that 'it is clear that as the
very first part of Article 5(2)(l) is not attracted, the question of going to any
other part of the said Article does not arise'; Also notes High Court
observation that Assessing Officer has not given any finding on nature of
functions performed by seconded employees, whether they reported to eFund Corp/
AEs while observing that this was not a correct way of deciding whether service
PE existed, expresses agreement with the approach of High Court; Supreme Court
also concurs with High Court that it has never been the case of Revenue that
e-Funds India was authorized to or exercised any authority to conclude
contracts on behalf of the US company, nor was any factual foundation laid to
attract any of the said clauses contained in Article 5(4) of the DTAA; Further
holds that since Revenue has agreed that transactions between assessees and
Indian entity were at ALP, no further profits can be attributed even if there
exists a PE in India, relies upon Morgan Stanley ruling; Regarding Revenue’s
contention that since assessee had admitted to certain profit attribution to ‘Indian
Pes’ under MAP proceeding for Assessment year 2003-04, such admission would
bind assessee for subsequent years, Supreme Court upholds High Court’s
conclusion that MAP agreement for earlier year cannot be considered as
precedent for subsequent years, relies upon Article 3.6 of OECD Manual on MAP
procedure. [In favour of assessee] (Related Assessment years : 2000-01 to
2002-03 and 2004-05 to 2007-08) - [Assistant
Director of Income Tax, New Delhi v. E-Funds IT Solution Inc. [TS-469-SC-2017] –
Date of Judgement : 24.10.2017 (SC)]
Considers MAP-outcome for
deciding allowance of payments towards management consultancy, know-how &
trademarks
ITAT follows outcome as
per MAP proceedings for Assessment year 2008-09, allows relief from
TP-adjustment on payment made by assessee (an Indian company) to UK-AE towards
Management Consultancy and Business Auxiliary Services, however, confirms part
disallowance only to the extent sustained in MAP proceedings; Noting that
Competent Authorities under MAP had accepted assessee’s methodology, allocation
key and 5% mark-up on costs as valid and bona fide, opines MAP
proceedings are albeit restricted to the transfer pricing adjustment, but, in
the instant case, throw a light on the actual availing of the Management
Consultancy and Business Auxiliary Services by the assessee along with a proper
allocation”; ITAT also allows deduction for technical know-how and
trademark / brand payment to AEs as a revenue expenditure following
jurisdictional High Court ruling in Hero Honda Motors, rejects Revenue’s
contention that it should be treated as a capital expenditure on which only
depreciation benefit was available; Notes that upon termination of agreement,
full ownership of the technical-knowhow was not transferred to assessee (as
claimed by Revenue) and in respect of trademark, assessee was making payment
only for ‘use of’ and not for acquiring trademarks as an owner; Further,
ITAT notes that Assessing Officer did not make separate TP-addition in respect
of technical know-how, trademark payment as the entire amount was already
disallowed as capital expenditure; Observing that TP-issue in respect of
payments towards technical know-how & trademark/ brand was also resolved
under MAP proceedings, ITAT holds the amount of transfer pricing
adjustment retained in the MAP proceedings for the year under consideration
shall stand as disallowance”. [In favour of assessee] (Related Assessment year
: 2007-08) – [GKN Driveline (India) Ltd. v.
ACIT [TS-359-ITAT-2016(DEL)] – Date of Judgement : 01.07.2016 (ITAT
Delhi)]
It
was apparent from records that amount involved in MAP was fully covered by bank
guarantee furnished by assessee and, moreover, assessee did not seek
adjournments during hearing of MAP proceedings, its application seeking
extension of stay of demand was to be allowed
Assessee
filed instant application seeking extension of stay granted earlier by Tribunal.
Assessee’s case was that amount involved in MAP was fully covered by bank
guarantee furnished by it and, thus, interest of revenue was duly protected. Assessee
also pointed out that it did not seek adjournments during hearing of MAP
proceedings. Revenue authorities did not controvert aforesaid submissions of
assessee. In aforesaid circumstances, status quo was to be maintained for a
period of six months or till disposal of appeal whichever was earlier. [In
favour of assessee] (Related Assessment year : 2008-09) - [Motorola Solutions (P.) Ltd. v. DCIT (2014)
149 ITD 179 : 41 taxmann.com 336 (ITAT Delhi)]
MAP acknowledgement amounts to ‘admission’;
Allows NIL withholding under India-USA MOU
Memorandum
of Understanding [MoU] between India and USA for suspension of tax collection
during pending Mutual Agreement Procedure [MAP], applicable from date of filing
MAP application before Competent Authority [CA]; Assessee, UPS Worldwide USA
had invoked MAP before US CA in respect of applicability of withholding tax on
'forwarding fees' received from UPS Jetair Express [India] for delivery of
parcels, etc. outside India; NIL withholding tax [WHT] certificate denied for
current year on basis that MAP application, though filed in the US, was not
admitted by Indian CA as on date of NIL WHT application; High Court holds that
'admission' as contemplated in MoU indicates 'acknowledgement' by the Indian CA
that application has been filed before US CA; Holds order rejecting NIL WHT
certificate unsustainable in view of pending MAP application and appropriate
bank guarantee furnished; Rejects Revenue's contention that granting WHT
certificate after the end of relevant assessment year is an exercise in
futility; MAP can be invoked within 3 years from the date of receipt of notice
from the Revenue
In
terms of article 27 of India-US DTAA read with MoU, suspension of assessment
and collection of tax takes place as soon as an application is made to
Competent Authorities to settle dispute under MAP proceedings and revenue is
secured by tax payer by furnishing a bank guarantee. Therefore, benefit of
suspension of assessment and collection of taxes cannot be denied by taking a
view that issue raised by tax payer has not been admitted for consideration
under MAP proceedings. [In favour of assessee] (Related Assessment year : 2010-11)
– [UPS Worldwide Forwarding Inc. v. Assistant Director of Income-tax
(International Taxation) [2013] 359 ITR 427 : 267 CTR 162 : 38 taxmann.com 250 :
[TS-535-HC-2013(BOM)] : (2014) 221 Taxman 236 (Bom.)]
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