India and South Korea ink MoU on taxation treaty

India and South Korea have inked a new memorandum of understanding (MoU) on suspension of collection of taxes during pendency of mutual agreement procedure.
This MoU will relieve the burden of double taxation for taxpayers in both the countries during the pendency of Mutual Agreement Procedure (MAP) proceedings.
Besides, both countries also have agreed that transfer pricing dispute cases will be taken up for MAP under the revised Double Tax Avoidance Agreement (DTAA) between India and Korea.
What is Mutual Agreement Procedure?

• MAP is an alternate dispute resolution mechanism that allows competent authorities of particular nation and its treaty partner to negotiate a mutually acceptable settlement.
• Under it, two signatory sides can negotiate settlement on a case that can subsequently be taken off from the formal legal process.
• As a resolution process, MAP draws up parameters for taxation in one country for which credit would be available in another.
• Main advantages: MAP is a preferred way used to settle cross-border tax cases globally.
• Eliminates of double taxation arising out of transfer pricing tax disputes, characterisation of income and attribution of profits and existence of Permanent Establishment.

Month: Current Affairs - December, 2015