New Delhi: Tax authorities in countries such as France, Germany and Italy will be able to strike bilateral deals with India’s income-tax department on valuation of cross-border transactions of multinational companies (MNCs) and avoid double taxation and disputes after New Delhi on Monday relaxed its position on dispute resolution.
The Central Board of Direct Taxes (CBDT) said in a statement that it has decided to accept applications for two schemes meant to pre-empt and resolve tax disputes even if India’s tax treaties with other countries do not explicitly provide for it.
Accordingly, MNC group companies will be able to apply for mutual agreement procedure (MAP)—a way of resolving tax disputes on cross-border transactions by tax authorities in their respective countries sitting across the table—and bilateral advance pricing agreements (APAs)—a way of preventing disputes by the tax authorities agreeing on the valuation of future transactions.
An agreed valuation of transactions spares MNC group companies from rigorous tax audits for five years.
CBDT said a number of references have been received regarding the acceptance of applications relating to MAP cases and bilateral APAs where the Indian entity’s associate is resident of a country with which India has a double taxation avoidance agreement (DTAA) but does not have a provision for what is called a “corresponding adjustment".
A unilateral agreement by an MNC with the income-tax department spares it from a tax dispute in India but for such a deal to be accepted by tax departments elsewhere and avoid double taxation, bilateral APAs are essential.
“This move will benefit MNCs looking to enter into bilateral APAs with the Indian tax authorities, especially those based in countries like France, Germany and Italy that are important trade partners of India. This change in stand of the tax department means that India will entertain bilateral APAs and MAPs with MNCs based in these countries without needing to amend the tax treaties," said Rahul K. Mitra, partner, KPMG India.
As of end October, India had entered into 184 APAs, including 171 unilateral APAs and 13 Bilateral APAs.
Kunj Vaidya, partner, PwC India, said the move will further improve ease of doing business in India.
“Multinational enterprises from two of the very important trade partners, France and Germany, would be the immediate beneficiary of move," said Vaidya.
The tax department had earlier taken the stand that unless a tax treaty contained provision of “corresponding adjustment", the applications for MAPs and bilateral APAs would not be accepted, which experts say was in contrast to the guidelines of the Organisation for Economic Cooperation and Development, the global grouping of nations that sets best practices in policies.