India-US resolve 100 tax dispute cases worth Rs 5,000 crore

India and the US have resolved more than 100 tax dispute cases involving Rs 5,000 crore under the bilateral Mutual Agreement Procedure (MAP).

A meeting of the Bilateral Competent Authority MAP or Advance Pricing Agreement (APA) between India and the US was held in Washington last month, and these long pending cases were resolved, a finance ministry statement said.

During the meeting, 66 MAP cases relating to Transfer Pricing issues and 42 MAP cases relating to Treaty Interpretation issues were agreed to be resolved successfully.

MAP, under the Double Taxation Avoidance Agreement (DTAA), is an alternative dispute settlement mechanism available to authorities and foreign investors.

"The total amount that was locked up in dispute in these cases is approximately Rs 5,000 crore and these cases were related to Assessment Years ranging from AY 1999-2000 to AY 2011-12," it added.

The resolved cases pertain to various issues like transfer pricing adjustments made to the international transactions in the nature of payment of royalty, management fees, cost contribution arrangements, engineering design services, contract R&D services, investment advisory services, Marketing Support Services, Software Development Services.

The treaty interpretative issues were in the nature of presence of permanent establishment in India and profit attribution to such PEs, disputes pertaining to royalty income v/s business income of foreign companies, etc.

During the meeting, India and US also reached an agreement on the terms and conditions of the first ever bilateral APA.

Though India started its bilateral APA process with the USA by accepting applications from the Indian taxpayers from FY 2012-13, the USA started its bilateral process with India only in February 2016 by way of accepting applications from US taxpayers, the statement said.

"The speedy resolution of cases and agreement on Bilateral APA due to effective mechanism of development of mutual trust and cooperation between the competent authorities of two countries would really be a positive factor in creating a conducive atmosphere for investments and business by US Companies in India," the statement added.

APA, introduced in the Income Tax Act in 2012, is a pact between a taxpayer and the tax department on a transfer pricing procedure for determining the value of assets and ensuing taxes on intra-group overseas transactions.

APAs could be a unilateral agreement between the company and Indian tax authorities or a bilateral agreement involving a foreign country.