Guidance note on Mutual Agreement Procedure (MAP) and impact of ITAT orders on MAP

  • MAP is a type of tax dispute resolution mechanism, for resolving issues involving double taxation or taxation not in accordance with Double Taxation Avoidance Agreements (DTAAs) or tax treaties.
  • MAP enables the Competent Authorities (CA’s) of India to engage with the CAs of other treaty partners and is a process which will enable both treaty partners to discuss and negotiate international tax disputes, which are not in accordance with the relevant DTAAs.
  • The CBDT has recently issued guidance note on MAP where the guidance is presented in the following four parts:
  1. Part A: Introduction and Basic Information;
  2. Part B: Access and Denial of Access to MAP;
  3. Part C: Technical Issues; and
  4. Part D: Implementation of MAP outcomes.
  • As per the Guidance Note, it is stated that prior ruling of Tax Appellate Tribunal (‘ITAT’, hereinafter) Indian CA’s should not deviate from the resolution order passed by statutory appellate body ITAT in cross-border
    tax disputes which are undergoing simultaneous resolution through mutual agreement procedure (MAP)
  • The guidance note stated that, since the ITAT is an independent statutory appellate body, which is outside
    the administrative jurisdiction of the Indian tax authorities; and is the highest fact-finding body on tax matters, the CAs in India shall not depart from the orders of the ITAT for the relevant year where the dispute is decided on merits.
  • India shall provide access to MAP in respect of, inter-alia, the following types of cases/situations if they result in taxation not in accordance with the relevant DTAAs:
  1. Transfer Pricing adjustments;
  2. Permanent Establishment Determination and Attribution;
  3. Attribution of profits to Permanent Establishments, whether admitted or not by the taxpayer;
  4. Characterization or re-characterization of taxable income and payment such as Fees for Technical Services, Royalty etc.

Our Comments:

  • The guidance note provides significant clarification pertaining to accessing the MAP, technical issues and implementation of MAP outcomes.
  • CBDT has made important clarification with regard to applicability of ITAT order on MAP proceedings.