Significantly, the revised guidelines, released earlier this month, have suggested that MAP should be used to resolve transfer pricing issues, where corresponding adjustments are not explicitly provided in tax treaties.
To speed up the resolution of transfer pricing disputes, the OECDs revised norms, incorporated in Chapter IV of the OECD Model Tax Conventions, has called for using arbitration when competent authorities are unable to reach an agreement within two years. Another key recommendation is that each transfer pricing dispute should be decided on its own merits and not be reference or judicial precedence of other cases.
It has also warned taxpayers against signing unilateral advance pricing agreements with countries, which include a provision barring access to MAP facility in case of a transfer pricing dispute.
The OECDs revised guidelines will work as a policy recommendation for its 30 member countries, which include Australia, France, the United States and the United Kingdom. While India only has an observer status, tax experts believe that the revised norms would have some impact on the countrys tax policy. The guidelines of the OECD could be extremely relevant in the wake of APA guidelines being proposed to be introduced by India under the new Direct Tax Code, PricewaterhouseCoopers (PwC) said in a statement.
It also noted that in 2008 India had expressed reservations on using MAP to settle transfer pricing disputes on the basis that it falls outside the scope of the mechanism. The above remarks made by India could form the basis of future tax treaty negotiations and would accordingly need to be factored in while structuring cross border transactions, PwC said.