TMI BlogIndia-UK 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)X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir 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 charge. (Anchal Khandelwal) Under Secretary to the Government of India Copy to: 1. Chairperson and Members of CBDT 2. All Officers in CBDT 3. ITCC Division (3 Copies) 4. Addl. CIT (Data Base Cell) for uploading on the IRS Officers Website 5. Guard File 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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