Indian tax administration would need to strengthen the teams overseeing MAP/APA cases by providing additional resources.
Tax treaties provide for the mutual agreement procedure (MAP) through which the competent authorities (CAs) of the contracting states may resolve differences or difficulties regarding the interpretation or application of the tax treaty on a mutually-agreed basis. In recent times, MAP has emerged as a preferred option for resolving transfer pricing (TP) controversies and other double taxation issues as it minimises risks of uncertainty and provides an effective and timely resolution.
On October 24, OECD released the sixth batch of peer review reports (the Report), for eight countries including India, relating to the implementation of the BEPS minimum standard under Action 14 (making dispute resolution mechanisms more effective). The peer review process assesses a member’s legal and administrative framework to determine how its MAP regime performs relative to the four key areas: (i) preventing disputes; (ii) availability and access to MAP; (iii) resolution of MAP cases; and (iv) implementation of MAP agreements.
The report provides interesting insights into the positions adopted by the Indian CA while granting MAP access. India provides access to MAP in all TP cases and cases concerning application of treaty anti-abuse provisions. However, it does not provide access to MAP for issues that do not give rise to double taxation, cases involving advance tax rulings and settlement commission. Further, for cases concerning the domestic anti-abuse provision, discussions during the MAP will focus on elimination of double taxation.
The Report indicates that the experiences of the peers in handling and resolving MAP cases with India is generally positive and affirms India’s commitment to make dispute resolution under tax treaties an effective and efficient process. A few peers note the difficulties in resolving case, particularly the long time it takes to reach an agreement. The peers attribute this to the lack of resources on the Indian side. It is noted in the report that MAP cases in India were not closed within 24 months (which is the pursued average for resolving MAP cases received on or after January 1, 2016). The peers recommend that India should hire additional personnel to ensure that MAP cases are resolved in a timely and efficient manner.
The OECD recommends that India should without further delay introduce clear and comprehensive MAP guidance. Further, it also recommends that India should change its policy to effectively allow access to MAP for issues concerning the question of whether the application of a domestic law anti-abuse provision is in conflict with the provisions of a tax treaty and on matters where there is no double taxation but there is taxation that is not in accordance with the provisions of a tax treaty.
In a post-BEPS world, MNCs face tremendous pressures and scrutiny from tax authorities. In the Indian context, given the challenges with the domestic tax law appeal process, MAP would continue to be a preferred option for resolving TP disputes. The Report reinforces India’s commitment to make dispute resolution an effective and efficient process. Considering the recommendations of the OECD, the Indian Tax Administration should issue detailed MAP guidance providing information on India’s approach to key issues in MAP and corresponding expectations of treaty partners. Further, the Indian Tax Administration would need to strengthen the teams overseeing MAP/ advance pricing agreement (APA) cases by providing additional resources for the efficacy of MAP/APA programme. These measures will strengthen the effectiveness and efficiency of MAP and taxpayers would find the forum more attractive. Peer reports must be reviewed to get a sense of the policy considerations and country positions while developing their MAP and APA strategy for effective dispute resolutions.
(The author is Tax Partner, EY India. Views are personal. With inputs from Shweta Pai, senior tax professional, EY India.)