Govt to disclose details of disputes under mutual agreement procedures
Disclosures under the MAP are aimed at improving dispute resolution mechanism and are part of global initiative on base erosion and profit shifting.
India will soon disclose the number of disputes being negotiated under the mutual agreement procedures (MAP) of tax treaties as well as details of the time being taken to resolve such disputes, in a move that will bring about greater transparency.
The disclosures are aimed at improving the dispute resolution mechanism and are a part of the global initiative on base erosion and profit shifting (BEPS) shepherded by the Organization for Economic Cooperation and Development (OECD).
MAP, a dispute resolution mechanism under tax treaties, enables elimination of double taxation and provides a framework for tax authorities of two countries to come together and arrive at an agreement that is acceptable to both sides.
MAP is typically used to minimize disputes relating to transfer pricing arising from transactions between two related entities situated in these countries. Transfer pricing is the practice of arm’s length pricing for transactions between group companies based in different countries to ensure a fair price—one that would have been charged to an unrelated party—is levied.
OECD mandates that disputes under MAP should be resolved within two years. However, arbitration is not mandatory and binding in case countries are unable to resolve disputes, after developing countries, including India, opposed this proposal. They had argued that taxation is a sovereign matter and disputes should be resolved bilaterally without involving a third party.
“The MAP process is going to be substantially overhauled. We are going to publish figures of how many disputes are there, how many have we resolved and how much time it will take. This should happen in 5-6 months. We are committed to resolving disputes at a most expeditious manner,” said a senior tax department official, who did not want to be identified.
“There is going to be a monitoring of the dispute resolution under MAP. An international peer review process is also being worked out. Countries will be under a lot of pressure to use the MAP process effectively to resolve disputes,” he said, pointing out that India has endorsed all the minimum standards. “If all these are implemented, then there will be no need for arbitration,” the official said.
BEPS guidelines aim to formulate global tax rules to end the practice of companies artificially shifting profits to low-tax jurisdictions, in the process hurting countries that are considered to be lucrative but relatively high-tax markets. However, they also have the potential to increase tax disputes as countries aggressively implement these policies.
In the past year, India has resolved around 150 disputes under the MAP process, the majority of which were with the US. Disputes between the two countries were pending for years on account of major differences. The UK and Japan are the other countries with which India is resolving disputes under MAP. “This move will increase transparency and help in resolution of disputes under MAP framework itself,” said Neeti Biyani, a consultant at the Centre for Budget and Governance Accountability.