India and US resolve 100 tax dispute cases under Mutual Agreement Procedure (MAP)

India and the US have resolved over 100 tax dispute cases involving Rs 5,000 crore under the Mutual Agreement Procedure (MAP).

Key facts

• A meeting of the Bilateral Competent Authority Mutual Agreement Procedure (MAP) or Advance Pricing Agreement (APA) was held last month in the US to resolve the long pending disputes.
• During the meeting, the two countries also arrived at an agreement on the terms and conditions of the first ever bilateral APA between them.
• 66 cases related to transfer pricing issues and 42 cases related to Treaty interpretation issues were resolved.
• The resolved cases were related to issues like transfer pricing adjustments, cost contribution arrangements, engineering design services, contract R&D services, Software Development Services etc.

Background

MAP, under the Double Taxation Avoidance Agreement (DTAA), is an alternative dispute settlement mechanism that allows multinational companies to settle transfer pricing disputes with tax authorities and eliminate double taxation. The need for such arrangements has surfaced as many US-based IT firms with operations in India had transfer pricing disputes with local tax authorities.

Similarly, the APA, which was introduced by India in 2012, is a pact between a taxpayer and the tax department on a transfer pricing procedure. The international transactions are complex and involve more than one country. The sole objective of the APA is to bring tax certainty in international transactions and overcome the issues due to transfer pricing between related parties.

Significance

This move could increase the comfort level of foreign investors over India’s tax laws. Speedy resolution of cases and agreement on Bilateral APA would help in providing conducive atmosphere for investments and business to US companies in India.