Income TaxAmendment in Mutual Agreements Procedure (MAP) Rules

INTRODUCTION

MAP is an alternate mechanism available to taxpayers for resolving disputes which are giving rise to double taxation whether juridical or economic in nature. The agreement for avoidance of double taxation between the countries would give authorization for assistance of Competent Authorities in the respective jurisdiction under MAP. In the context of OECD Model Convention for the Avoidance of Double Taxation, Article 25 provide for assistance of Competent Authorities under MAP.

The main benefit of pursuing MAP is elimination of double taxation. It is very rare that a case under MAP is not resolved. Study report states that around 600 tax-related disputes have been resolved between 1st April, 2014 and 31st December, 2018 with the MAP. The MAP resolution, once accepted, eliminates the need for protracted litigation.

PRIOR TO AMENDMENT

Prior to the amendment, Rule 44G of the Income Tax Rules, 1961 (the Rules) provided only for the invocation of MAP i.e. any assesse aggrieved by the action of tax administrative of any foreign country, which attracts the provision of tax, which are not in accordance with tax convention/ tax treaties may make an application in Form. No. 34F for invoking the MAP.

AMENDMENT IN MAP PROCEDURE – RULE 44G

Central Board of Direct Tax (CBDT) vide notification no 23/2020/F.No. 370142/31/2019 -TPL dated 06.05.2020 has amended the Rule 44G (application & procedure for giving effect to MAP agreement) of the Rules and revised the Form 34F with respect to making application to Competent Authority for invoking MAP. The amendment in Rule 44G states that:

1.The Competent Authority in India shall endeavor to arrive at a mutually agreeable resolution of the tax disputes, in accordance with the agreement between India and the other country or specified territory within an average time period of 24 months.

2.Further it states that if a resolution is so arrived, the assessee shall communicate his acceptance or non-acceptance within 30 days.

3.An Assesse, upon the acceptance of the resolution, shall withdraw any appeal filed in this regard and pay the tax determined by the Assessing officer (AO) after giving effect to the resolution.

4.As far as Form No. 34F is concern, the amendment requires the competent authority in India to call for relevant records from the income tax authorities/assessee in India and understand the actions taken by the authorities that are not in accordance with the terms of the agreements between India and the other country or specified territory.

5.Form 34F which has been revised in the aforesaid amendment seeks details of remedy sought along with documentary evidence, if any, in addition to any information which are related specifically to the assessee

6.Rule 44H has been omitted under this amendment.

ANALYSIS

The aforesaid amendment is in line with the recommendations provided under Base Erosion and Profit Shifting (“BEPS”) Action Plan 14 i.e. Making Dispute Resolution Mechanisms More Effective.

OCED states that “The BEPS Action 14 Minimum Standard seeks to improve the resolution of tax-related disputes between jurisdictions. Inclusive Framework jurisdictions have committed to have their compliance with the minimum standard reviewed and monitored by its peers through a robust peer review process that seeks to increase efficiencies and improve the timeliness of the resolution of double taxation disputes.”

CONCLUSION

MAP provides for a complete and determinative cost effective alternative to multiple litigation process and such proceedings are binding on revenue authorities. One of the benefits of MAP is that it is not binding on the taxpayers.

The tax payers can continue with the domestic remedies also, i.e. it’s not a mandatory remedy which tax payer needs to opt for rather it’s an additional remedy available to the taxpayer.

However, this procedure has certain limitations too, which was noticed and tried to be resolved in Action Plan 14 of BEPS. According to the various authors the MAP is said to be an additional alternate remedy available to the tax payer and not a substitution of the remedies before domestic Courts or Tribunals.

The new amended rules under Rules 44G of Income Tax Rules, 1962 clearly display’s the intention of the Indian Government to encourage settlement and avoid the unnecessary litigation, which helps in faster resolution in long-drawn traditional litigation process.

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