TMI BlogUpdated Mutual Agreement Procedure (MAP) Guidance.X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Income- tax Act or under any other law for the time being in force or under any agreement, whether for protection of investment or otherwise, ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 negotiation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocedure ( MAP , hereinafter). 2. Rule 44G of the Income-tax Rules, 1962 has been notified vide G.S.R.282 (E) dated 6th May, 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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