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Indo-US tax thicket close to resolution

Dec 27 2013, 00:43 IST
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While the Indian side has put forward the APAs, the US tax man’s response is awaited. Reuters While the Indian side has put forward the APAs, the US tax man’s response is awaited. Reuters
Summary70 US firms in MAP process opt for APA solutions.

A solution to the growing Indo-US tax disputes may be reached as early as next fortnight, a senior tax official said, with the US expected to respond to the proposals put forward by the Indian side as part of the mutual agreement procedure (MAP) to resolve tax cases.

Of the 100-plus US firms such as Microsoft that have disputes with Indian tax authorities, around 70 have already filed for a solution through what are called advance pricing agreements (APA), which detail the manner in which various expenditure and income are to be treated by the tax authorities for a period of five years. While these are ‘unilateral’ APAs in the sense they are not recognised by the US tax man, the MAP solution being sought is to convert them into ‘bilateral’ APAs.

Converting them into bilateral APAs means the US tax man will also give the assessee firm deductions for the taxes paid to the Indian authorities as per the APA.

While the Indian side has put forward the APAs, the US tax man’s response is awaited.

If all 70 APAs get converted into bilateral APAs, in a sense, this would mean 70% of the outstanding tax disputes — at least in terms of the number of companies involved — would be resolved.

“We are expecting a favourable response from the US side soon and the moment Indian and US tax authorities accept an agreement, most of the unilateral APA applications filed by the US companies will turn into bilateral applications. This will resolve those cases fast and once bilateral APAs are concluded, there would be certainty in tax treatment of the transactions made for at least five years, which will take care of the uncertainty and litigation both,” said an official.

Senior officials from the finance ministry in the know of the development said that under the framework being looked at, US companies involved in these cases would file for bilateral APAs involving both the Indian and US revenue departments.

While Microsoft's Indian arm has been asked to pay increased taxes with the tax man saying the local arm had understated its income from FY06 to FY09 by Rs 5,135 crore, similar demands have been made on such transactions of other multinational companies in the last two to three years.

While Indo-US MAP negotiations had got stuck with the US side not willing to even sit down for discussions as long

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