The Central Board of Direct Taxes (CBDT) has issued revised guidelines for the Mutual Agreement Procedure (MAP), a mechanism used to resolve tax disputes between countries under Double Taxation Avoidance Agreements. These new rules provide clarity on how international tax disputes are handled when taxpayers simultaneously engage with domestic settlement schemes, advance rulings, or anti-tax avoidance measures.
Under the updated framework, taxpayers who opt for safe harbour provisions for international transactions are generally barred from seeking further relief through MAP. However, if a foreign tax authority’s decision impacts a return filed in India under safe harbour, the foreign associated enterprise may initiate the process through its own competent authority. In such instances, India will maintain the safe harbour price but may request relief from the other country.
The guidelines establish a strict timeline for the resolution process. Taxpayers are required to accept a settlement and provide proof of withdrawal of any pending domestic appeals within one month from the end of the month in which they receive the communication. Assessing officers are similarly mandated to implement these settlements within one month of receiving instructions. The CBDT stated that it continues to aim for an average resolution time of 24 months for these cases.
Regarding the Direct Tax Vivad se Vishwas Scheme, 2024, the CBDT clarified that once a taxpayer settles a dispute and receives the scheme's benefits, Indian authorities will not revisit that outcome through MAP. If a taxpayer has applied for the scheme but has not yet paid the required taxes, they may still seek international resolution; however, the settlement outcome will take precedence once the scheme's benefits are fully availed.
Key facts
- The CBDT aims to resolve cross-border tax disputes within an average of 24 months.
- Non-residents can seek MAP while their cases are pending before the Board for Advance Rulings (BAR).
- Indian tax authorities will not deviate from BAR decisions on the merits of a case but may seek relief from the partner country.
- Taxpayers who have settled under the Vivad se Vishwas scheme cannot access MAP for the same issue.
- The revised guidelines are detailed in a 22-page document released by the CBDT.
Why it matters
As India increases its international trade footprint through various Free Trade Agreements, the updated guidance provides necessary clarity for businesses navigating complex tax environments. By streamlining the interaction between domestic law and international treaty obligations, the board aims to reduce uncertainty for foreign companies operating in India, helping them mitigate the risks of double taxation.
Source: Economic Times, Livemint
Comments