India

  1. In your jurisdiction, what are the legal bases for eliminating double taxation further to a transfer pricing reassessment (European Arbitration Convention, mutual agreement procedures provided for by tax treaties)? In addition to the procedures set forth by such tax treaties, is there any other (formal or informal) domestic procedure in your jurisdiction?
  2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?
  3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?
  4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?
  5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 2 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)
  6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?
  7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?
  8. Is tax collection suspended during the procedure?
  9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?
  10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

The transfer pricing provisions provided by the Income Tax Act of 1961 1 IT Act/Domestic law do not envisage the concept of correlative transfer pricing adjustment.

Most of Double Tax Treaties (hereinafter “DTTs”) signed by India include provisions about mutual agreement procedures. However, only part of tax treaties includes provisions similar to Article 9 paragraph 2 of the OECD Model Tax Convention (hereinafter “OECD-MTC”). No elimination of the double-taxation deriving from a transfer pricing reassessment can be obtained in India when DTTs do not include this paragraph. India has made a statement in this respect within the OECD Commentaries on the Model Tax Convention. DTTs with Belgium, France, Germany, Italy, Singapore and Korea do not include provisions similar to Article 9 paragraph 2 of the OECD-MTC. Therefore, mutual agreement procedures are not available for transfer pricing issues arising with one associated enterprises established in one of these countries. But, for example, DTTs with the UK, the US or the Netherlands contain such a clause.

2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?

None of the DTTs concluded by India include an arbitration clause. However, some of the treaties that India has signed with the other countries does contain a clause in the Article dealing with ‘Associated Enterprises’ which enables competent authorities to consult each other to determine adjustment of profits chargeable to tax in the respective states.

3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?

Mutual agreement procedures could last up to four to five years for the double taxation to be solved between the competent authorities. Duration of the procedure is neither limited by DTTs concluded by India nor by the domestic law.

4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?

According to the provision included in most of the tax treaties concluded by India, the taxpayer can initiate a mutual agreement procedure within three years from the first notification of the action resulting in double taxation.

Some tax treaties concluded by India do not include any time limit for initiating the mutual agreement procedure (e.g. DTTs with the UK or Egypt). In such cases, domestic provisions in the other jurisdiction should be taken into account.

5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 2 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)

Indian domestic law does not include any provision in this respect. Therefore, the taxpayer should follow the process indicated in the relevant DTT.

Where a person considers that the actions of one or both States parties to a DTT result in a double-taxation, it may present its case to the competent authority of the State of which he is a resident or national depending on the DTT.

6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?

Application to the Indian tax authorities by a resident of India for a MAP should be made through the filing of the form 34F. In particular, this form should indicate the following elements:

  • Other country concerned and competent authority of this country;
  • Treaty provisions on which the procedure is based;
  • Name of the applicant and identification date;
  • Date of the notice or order giving rise to the action;
  • Assessment year and date of year ending; and,
  • Whether and why the action of the other country tax authority is not in accordance with the tax treaty.

The only required supporting document is the copy of the notice or order giving rise to action.

7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?

There is no rule under Indian domestic law under which the competent authority could refuse to open a MAP.

8. Is tax collection suspended during the procedure?

Tax collection is not suspended during the procedure but, for example, India has concluded Memorandums of Understanding (“MoU”) with the United States (in 2003) and the United Kingdom (in 2004) which provide for a suspension of tax collection for the amount concerned by the MAP to the extent a corresponding bank guarantee has been made by the taxpayer.

9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?

Pursuant to Rule 44H of the Indian Income Tax Rules, a tax officer should give effect to the MAP within 90 days of receipt of the resolution by the tax authorities if the tax payer has agreed to the outcome of the MAP and has withdrawn any appeal pending on the issue.

10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

No Indian domestic provision restrains the right of a taxpayer to engage concomitantly a MAP and litigation in front of courts.

India has made a statement in the non-member part of the OECD commentaries on the Model Tax Convention which enables tax authorities to reach an agreement on a MAP while a domestic appeal is still pending. However, the taxpayer has to withdraw domestic action prior to accept the outcome of the MAP. Accordingly, the tax payer is not able to defer acceptance of the solution until court decision.

Authors

Bijal Ajinkya
Khaitan & Co.
Surajkumar Shetty
Khaitan & Co.