India: The Indian Revenue’s Measures for effective Dispute Resolution

I. Making the MAP process robust and transparent

In its resolve to make the MAP process robust and transparent, the Indian Revenue contin­ues to have the following key resolution parameters in its updated Guidance:

• Uniformity in making a MAP application – It has been proposed to make the time limit for making an application for MAP uniform across all Double Tax Avoidance Agreements that India has entered into, i.e. three years from the first notification of the action resulting in double taxation.
• Time limit to resolve MAP – The government has committed in its official MAP Guidance that the Competent Authorities shall endeavour to resolve MAP within 24 months of application → in conformity with the minimum standards recommended in the BEPS Action 14 final report.
• Access to MAP in case of alternate resolution mechanism – The Government clarified the stance that while accepting MAP applications in cases where the Indian taxpayer has already closed the dispute through an alternate resolution mechanism, i.e. APA, Safe Harbour provisions or through the normal litigation route, the outcome reached under the alternate resolution process shall not be modified. Instead, the Competent Authori­ties shall make all efforts to persuade Competent Authorities of other jurisdictions to provide correlative relief.
   

The Indian MAP process provides flexibility to taxpayers to pursue alternate resolution mechanisms simultaneously while pursuing MAP.

It has been observed in recent years that the Indian Revenue has been proactive in resolving matters under MAP with an intent to provide transparency, clarity and resolutions for taxpayers.

II. Fast Track APA process

With the impact of the pandemic reducing, the Indian Revenue has fast tracked its APA process to provide certainty to taxpayers in their Transfer Pricing disputes. The Indian Revenue has entered into 62 APAs (13 Bilateral APAs and 49 Unilateral APAs) in FY 2021-22. This is double the number of APAs entered into in FY 2020-21, i.e. 31 APAs.

In the past, the Indian taxpayers have witnessed aggressive scrutiny from the Transfer Pricing perspective which has resulted in protracted litigation. With the Indian APA pro­gramme introduced in 2012, the Indian Revenue has entered into 421 APAs to date, result­ing in tax certainty and limiting Transfer Pricing litigation for the taxpayers.

III. Extending validity of existing Safe Harbour Rules for FY 2021-22

The applicability of safe harbour rules for specified transactions has been extended for FY 2021-22 to provide certainty to Indian taxpayers. Some of the commonly entered into international transactions and their applicable safe harbour rates are:

The arm’s length cost plus rate as determined through local benchmarking is reasonably lower than the cost-plus rate under the safe harbour rules. Taxpayers must undertake a thorough cost-benefit analysis before opting for the cost plus rate under the safe harbour rules over the arm’s length rate as determined through local benchmarking, and pursue alternate active resolution mechanisms (i.e. APAs or a normal litigation route) if challenged by the tax officers to reach a conclusion.

Read the WTS Global Transfer Pricing Newsletter here.