Markets: Eerie calm

Markets: Eerie calm

it is not clear when market sentiment can change; as in the past, it can be quite sudden.
At a turn and yet not

At a turn and yet not

RBI could be tempted to cut policy rate to support growth at its bi-monthly review.

Institutionalise conciliation or face arbitration

May 22 2014, 20:45 IST
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SummaryAppropriate amendments are needed to ensure that the arbitration proceedings at least take place in India

While disputes are inevitable in any regime following the rule of law, the old saying “justice delayed is justice denied” is also valid. Every country should have an efficient and effective system for dispute resolution. Fiscal legislations and their application to a variety of business situations are a major source of litigation globally as well as in India. As uncertainty in the global economy is pushing companies to cut costs, there is equal pressure on tax authorities to boost revenue so as to rein in increasing fiscal deficits and meet public expenditure. This has led to rigorous and aggressive approach by revenue authorities, and taxpayers perhaps are left with no option but to litigate to defend their position.

The aggressive approach of Indian tax authorities on transfer-pricing and international tax matters underlines the government’s intention of taking strong action to defend its tax base. When it comes to taxation of cross-border transactions, India’s inclination to widen the source-based tax rules is clearly demonstrated by the retrospective amendments introduced in 2012 relating to indirect transfers and widening of the scope of royalties which is dragging several MNCs into long-drawn litigation. The consequent gloom and uncertainty had admittedly impacted India’s image as an attractive investment destination among foreign investors; however, it is unlikely that the government would have anticipated that these tax disputes would travel to arbitration of international scale.

While fiscal disputes are becoming the new normal for MNCs in India, they are also grappling with the current dispute resolution mechanism under the Indian legal system. Experience shows that a case takes at least 15 years to attain finality. As is typical of the Indian judicial process, speedy resolution of disputes is rare due to huge pendency of cases and inadequate infrastructure plaguing the judicial system of the country. As per reports, more than 32 million cases are pending in high courts and subordinate courts across the country. The Supreme Court itself had a backlog of approximately 66,349 pending cases as of December 2013. In such a scenario, MNCs are wary of having these high stake disputes settled in Indian courts.

The Double Taxation Avoidance Agreement (DTAA) provides for the Mutual Agreement Procedure (MAP) as a framework to resolve certain cross-border tax disputes arising from interpretation of the DTAA provisions. However, the applicability of the MAP is limited to certain category of disputes and the efficacy and success of the MAP practically depends on

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