On 10 June 2022, India’s Central Board of Direct Taxes (CBDT) issued comprehensive updated guidance on the Mutual Agreement Procedure (MAP) and related matters. The guidance supplements the previous guidance published on 7 August 2020 and addresses areas not covered by the previous guidance, as well as MAP-related questions raised by stakeholders and contractors since the publication of the previous guidance. The updated guideline includes:
-The new guidance gives prominence to important aspects such as transparency in the disclosure of information that is material to the MAP process under tax treaty negotiations. It also contains new sections dealing with matters resolved under the direct tax resolution scheme and an applicant’s responsibilities. The overall objective continues to be to reduce tax litigation and mitigate double taxation in accordance with India’s tax treaties.
-Accordingly, the CBDT introduced a direct tax dispute resolution scheme (the “VsV scheme”) for resolving pending disputes via the Direct Tax Vivad se Vishwas Act, 2020 (the “VsV Act”) with the objective of reducing pending income tax litigation. The new MAP guideline has clarified the relationship between MAP and the VsV system. CBDT has stated that if an Indian resident taxpayer opts for the VsV scheme to settle a transfer pricing dispute and the tax authorities of India accept the same, the relevant authorities of the other countries or certain territories may accept MAP applications from their taxpayers and notify the relevant authorities of India. However, CBDT has also clarified that the competent authorities of India shall not grant access to MAP to a non-resident taxpayer who has self-elected to the VsV scheme on the same matter as that applicant has relinquished their statutory right to access MAP under the Regulations of the VsV law.
-MAP applicants also 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 CA in good faith will assist in the smooth and efficient operation of the MAP process. A most important addition to the MAP Guidance is a new Part E, which emphasizes a MAP applicant’s responsibility to provide full and truthful information, as this can have a significant impact on the negotiation process. Disclosures must be made on item (k) of the existing Form 34F under Rule 44G of the Income Tax Regulations 1962.
-In addition, CBDT has highlighted that while many of India’s DTAA partners do not allow the simultaneous pursuit of appeal and MAP processes, India follows a liberal system whereby the taxpayer can choose to pursue both an appeal and a MAP -Proceeds want to follow at the same time. In such cases, the DTAA partner is free to grant relief from double taxation.
