CBDT issues fresh guidance on cross-border disputes for taxpayers

NRI taxpayers cannot seek MAP if they opt for Vivad se Vishwas

Authorities will allow the country’s taxpayers to access the mutual agreement procedure (MAP) for cross-border disputes. This is even if they had settled the case under the direct tax dispute resolution scheme — Vivad se Vishwas — without deviating from the outcome of the scheme, said the Central Board of Direct Taxes (CBDT) on Monday. 

However, non-resident taxpayers, who opted for the resolution scheme, cannot go for MAP on the same issue, it clarified. 

MAP is an alternative dispute resolution mechanism under the tax treaties where competent authorities of two countries enter into discussions to resolve tax-related disputes. 

The CBDT has come out with a fresh guidance note on MAP that also specifies cases or situations in which India will provide access to MAP. This is following the slew of queries it received from industry stakeholders on consequences of the resolution scheme on MAP.

Tax disputes relating to transfer-pricing adjustments, determination of existence of a permanent establishment, attribution of profits to permanent establishments and characterisation or re-characterisation of an expense or receipt as a taxable expense or income would be covered under MAP.

This is if they result in taxation not in accordance with the relevant Double Taxation Avoidance Agreements (DTAAs).

The guidance note also clarified that the authorities will fully abide by the ruling of the Income-tax Appellate Tribunal (ITAT) related to drawing curtains on corresponding cases pending under MAP, unless the ITAT has set aside the matter for fresh adjudication.  

Accordingly, where an ITAT order has been passed on merits, corresponding MAP cases will be ‘closed as resolved under domestic remedy.’ In such cases, taxpayers may independently pursue the alternative remedy of urging their respective tax authorities to allow relief from double taxation based upon the merits of ITAT decision.

A non-resident taxpayer — who opted for Vivad se Vishwas settlement on the same issue would forfeit his right for MAP resolution. This is owing to voluntary surrender of such legal rights under Section 5(3) of the Vivad se Vishwas Act. 

The guidance note also said that taxpayers pursuing MAP carry the inherent responsibility of making ‘true-and-complete’ disclosure. It should be based on the cardinal principle of ‘good faith action’ by keeping the authorities abreast of up-to-date information relevant to the case.

This includes disclosure of corresponding adjustments made in home countries on the same transaction, or in terms of sharing the same set of comparable data with the Indian authorities.

“The tax authorities clarified that taxpayers should not hope to achieve a different outcome under MAP. This is in cases where there exists overlap with prior settlement under Vivad se Vishwas or adjudication by the ITAT,” said Chirag Nangia, partner, Nangia & Co LLP.