The CBDT vide MAP GUIDANCE/2022 dated June 10, 2022 has issued an updated Mutual Agreement Procedure (“MAP”) Guidance addressing stakeholder’s concerns.
The Board has issued a guidance on MAP procedure and matters connected thereto for the benefit of taxpayers, tax practitioners, tax authorities, and Competent Authorities (CAs) of India and of treaty partners vide F.No. 500/09/2016-APA-I dated August 07, 2020. Subsequently, stakeholders have raised queries on certain related aspects of MAP, which are not covered by existing guidance. Some partner countries have also requested for clarity on certain issues, such as consequences of the Vivad se Vishwas scheme on MAP. Considering all these inputs and suggestions for clarity, the Board has decided to update the MAP guidance as detailed below.
A. MAP and Vivad se Vishwas Scheme
Some partner jurisdictions and stakeholders have sought clarification on impact of Vivad Se Vishwas Scheme on MAP. Accordingly, clarification on the interplay between MAP and Direct Tax Vivad se Vishwas Act is added in Part B, Section II after para (e) as under:
f) Direct Tax Vivad se Vishwas Act – Government of India brought a new tax dispute resolution scheme under the “Direct Tax Vivad se Vishwas Act, 2020’ (henceforth ‘VsV Act’), with the objective of reducing the pending income tax litigations at various appellate forums. The details in respect of eligibility and other provisions of the Act are contained in the Direct Tax Vivad se Vishwas Act, 2020 and various other circulars/ clarifications issued by the Board from time to time in this regard.
Sub-section 3 of Section 5 of the VsV act states as under:
“5(3) Every order passed under sub-section (1), determining the amount payable under this Act, shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceeding under the Incometax Act or under any other law for the time being in force or under any agreement, whether for protection of investment or otherwise, entered into by India with any other country or territory outside India.”
In this regard, where a resident tax payer opted for VsV Scheme for settlement of a case which involves resolution of transfer pricing adjustments on international transactions with its Associated Enterprises (AEs), and the same is accepted by the tax authorities of India, the CAs of the other countries or specified territories may accept MAP applications from their taxpayers (which are AEs of the Indian taxpayer), and notify the CAs of India. The latter would allow access to MAP but shall not deviate from the result arrived under the VsV. Instead, they would request the CAs of the treaty partners to provide correlative relief.
Further, the CAs of India shall not provide access to MAP to a non-resident taxpayer which has itself opted for the VsV scheme on the same issue, because the applicant has given up its legal right to access MAP in accordance with sub-section (3) of Section 5 of the VsV Act.
B. Responsibility of MAP applicant to make True and Complete Disclosure
MAP operates on the basis of trust and good faith among competent authorities and taxpayers. Unlike normal audit scrutiny or appeal proceedings, in most cases, MAP is resolved by CAs through discussions based on documents submitted by the taxpayer. However, recently a couple of cases have come to the notice of CAs wherein taxpayers have either suppressed information (invoking MAP in respect of adjustments made by one treaty partner without mentioning the fact that adjustment has also been made by the other treaty partner on the same transaction) or not giving the same set of comparable to the CAs particularly in cases where both BAPA and MAP are involved.
Further, as has been clarified in the MAP guidance, where Hon’ble ITAT has passed a final order, the CAs of India shall not deviate from such order and MAP in such cases shall be closed as resolved under domestic remedy. It is of course open to the treaty partner to provide relief from double taxation in such cases. It may be mentioned here that many of India’s treaty partners do not allow appeal and MAP proceedings to be pursued simultaneously. The taxpayer in those jurisdictions can pursue appeal only after the MAP process fails or results in an outcome that is not acceptable to tax payer. On the other hand, India follows a liberal regime where the taxpayer can choose to pursue both appeal and MAP proceedings simultaneously. Therefore, if in a case Hon’ble ITAT passes any order, the taxpayer must immediately notify the CAs so that MAP proceedings are closed forthwith, and any infructuous work is avoided.
In view of the above, a new Part E is added to the MAP guidance to highlight MAP applicants’ responsibilities, as under:
Part E
Applicant’s responsibilities
I. Responsibility of making true disclosure
A taxpayer resident in India can make an application to the CA of India having jurisdiction over the case if it considers that the actions of the tax authorities of the treaty partner resulted or will result in taxation not in accordance with the relevant tax treaty. Such an application has to be made in Form No. 34F in accordance with rule 44G. In item (k) of Form 34F, the applicant should provide all the facts of the case that can materially affect the negotiation process. For instance, if adjustments have been made to the same international transaction by Indian tax authorities as well as its treaty partner’s tax authorities, the CAs of the two countries can be blind-sighted in negotiations if the applicant only mentions adjustments in one jurisdiction and leaves out the crucial fact of adjustments in the other jurisdiction.
II. Responsibility to provide up-to-date information
Good faith action is the hallmark of alternate dispute resolution under MAP. The applicant must keep the CAs as up-to-date as possible on all material changes in the information or documentation previously submitted as part of, or in connection with, a request, as well as new information or documentation relevant to the issues under consideration. Making all relevant documentation and information accessible to a competent authority, in good faith, will assist in the smooth and efficient operation of the MAP process.
This guidance has dealt with the interplay of MAP with other processes such as regular tax appeals, tax settlements, and domestic dispute resolution schemes. The applicant best knows about its status in other fora. The applicant should promptly provide updated status of proceedings in other fora that could affect the MAP process.
The MAP guidance as issued vide F.No. 500/09/2016-APA-I dated August 07, 2020, and as amended above, may be adhered and referred to by taxpayers, tax practitioners, tax authorities in India and CAs of India. If any element of the MAP guidance comes in conflict with the domestic legislation, rules, instructions, and circulars in India or with the DTAAs entered into by India, the provisions of such domestic legislation, rules, instructions, and circulars or the DTAAs, as the case may be, shall prevail.
A copy of consolidated MAP guidance i.e., MAP guidance dated August 07, 2020 as amended by this communication is placed at annexure for the benefit of stakeholders. The same has also been uploaded on the departmental website.
The MAP Guidance along with Annexure can be accessed at: https://a2z-bucket.s3.ap-south-1.amazonaws.com/wp-content/uploads/2022/06/CBDT_MAP_guidance_2022.pdf
We have recently released the 7th Edition (May, 2022) of our book on Goods and Services Tax, titled, “GST LAW AND COMMENTARY – WITH ANALYSIS AND PROCEDURES”, updated with the Finance Act, 2022 in a set of 4 Volumes. We thank you all for the support and your enduring response.
Have a look at the complete tour of the Book at: https://cutt.ly/nF6O0oN
Order your copy now and be a part of the GST learning excursion in the most comprehensive and lucid form !!
For more details and purchase online at: https://cutt.ly/RFMox8D