India resolves tax disputes worth Rs.5,000 cr with foreign companies

The cases that have been resolved in the past two years are related to sectors like software and other IT-enabled services, manufacturing and consultancy The Dollar Business Bureau

According to the government, MAP is an effective tax dispute resolution mechanism, which ensures smooth business environment for foreign investors and reduce the number of cases under litigation

The Indian tax authority has resolved 180 disputes worth Rs. 5,000 crore pending with various foreign companies since April 2014 under the framework of Mutual Agreement Procedure (MAP). MAP, which is part of the Double Taxation Avoidance Agreement signed by the Indian government with the US and other countries, allows smooth settlement of tax-related issues concerned with multinational companies operating from India. Most of the disputes emerge due to implementation of taxes on transfer pricing— a method of fixing price in cases of cross-border transactions of goods and services between multiple units of a multinational firm operating from different countries. The cases that have been resolved in the past two years are related to sectors like software and other IT-enabled services, manufacturing and consultancy. These cases had been pending with countries like the US, UK, Japan, and China. “The total amount of income locked up in dispute in these cases is approximately Rs.5,000 crore. The resolved cases pertain to various sectors of the economy like software services, IT-enabled services, manufacturing and consultancy services, etc,” Finance Ministry said in a statement on Tuesday. According to the government, MAP is an effective mechanism aimed at resolving tax disputes, which ensures smooth business environment for foreign investors and bring down the number of litigated cases. “This is one of the actions taken by CBDT to ensure a fair and judicious dispute resolution regime to encourage foreign investment. In the last two years, increased focus on MAP has resulted in resolution of large number of disputes relating to double taxation,” the statement added. Double Taxation Avoidance Agreements are aimed at providing relief to taxpayers through a Mutual Agreement Procedure, under which companies can easily settle disputes with tax authorities. To ensure predictability in terms of tax levied on overseas investors especially in cases of transfer pricing, the Indian government has also signed Advanced Pricing Agreements (APAs) with several countries as well as individual multinational companies having offices in India. Such agreements enable companies to declare prices and method of fixing prices of various international transactions in advance so as to avoid audit from the income tax department.

February 17, 2016 | 04:40pm IST

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The Dollar Business Bureau - Feb 17, 2016 11:05 IST

India resolves tax disputes worth Rs.5,000 cr with foreign companies

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