India: Updates on the Mutual Agreement Procedure (MAP)

The Central Board of Direct Taxes (CBDT) issued a detailed Guidance on MAP in August 2020 for the process to be followed by an Indian Competent Authority (CA) and field officers, and comprehensive guidance on issues related to MAP processes.

Key features

Part A – Procedural guidelines and conditions for a MAP application

•  MAP application to be filed within 3 years from the first notification of the action giving rise to taxation, not in accordance with the relevant tax treaty.
•  CAs shall endeavour to complete the MAP case within 24 months.

Part B – Access and denial of MAP

Access to MAP is available:

• When a taxpayer faces issues due to transfer pricing adjustments, determination of existence of a permanent establishment and attribution of profits thereof, re-characterisation of income or expenses (royalty or fees for technical services or interest), domestic anti-abuse provisions invoked by Indian tax authorities, etc. CAs in India would provide access to MAP and request CAs of treaty partners to furnish correlative relief when some outcome has been agreed in the situations below:
• Where the taxpayer has entered into a Unilateral Advance Pricing Agreement with CBDT
• Where the taxpayer has applied safe harbour provisions and return of income is accepted by the tax authorities; and
• Where the Income-Tax Appellate Tribunal in India has passed an order regarding the same issues/years that are also being examined under MAP.

Denial of access to MAP

• If CAs in India conclude that the objection raised by the taxpayer on the action taken by the tax authorities is not justified.
• In the case of incomplete MAP application/documents/information.
• If income-tax settlement commission has passed a settlement order or if the Authority of Advance Ruling has ruled on the same issues under a MAP application.
• In respect of issues that are purely governed by India’s domestic law.

Part C – Guidelines on procedural technicalities

• MAP resolution cannot reduce the returned income. However, in respect of MAP cases involving adjustments made by tax authorities of a treaty partner, CAs in India may go below the returned income of the Indian taxpayer so as to implement the MAP resolution.
• CAs in India may resolve recurring issues based on the same principles, as adopted in a prior MAP resolution, if a separate application is filed for each year.
• Under MAP, CAs in India cannot consider consequential issues such as disputes relating to interest and penalties, as these will continue to be administered under the domestic laws.
• CAs in India are now required to cover the secondary adjustments in the MAP resolution.

Part D – Guidelines on implementation of MAP

• The intimation of acceptance of MAP resolution by the taxpayer to be made in 30 days.
• The tax office to make the MAP resolution effective within one month from the end of month in which it receives the letter from the Indian CA.

Updates on tolerance range

Recently, on 19 October 2020, the Government of India retained the tolerance range applicable for transfer pricing for fiscal year 2019-20 at 1% for wholesale trading and 3% for all other cases.

Read the WTS Transfer Pricing Newsletter here