CBDT MAPs out rules for foreign taxpayers

Foreign companies can seek international resolution of tax disputes even when the issues have been decided by India's Board for Advance Rulings (BAR), the Central Board of Direct Taxes (CBDT) clarified on Thursday in revised guidelines on cross-border taxation.

However, Indian tax authorities cannot alter a BAR decision on the merits of a case through international negotiations. Instead, they will seek corresponding tax relief from the other country, where applicable. The revised Mutual Agreement Procedure (MAP) guidelines also introduce a one-month deadline for taxpayers to accept settlements and withdraw pending appeals. Assessing officers must implement the settlements within a similar timeframe.

The guidelines also clarify how international tax disputes will be handled when taxpayers opt for the Direct Tax Vivad se Vishwas Scheme, 2024, or when Indian authorities invoke domestic anti-tax avoidance rules. Taxpayers who have applied under the 2024 settlement scheme but have not yet paid the tax required to avail themselves of its benefits can still seek international resolution. However, once they settle the dispute and avail themselves of the scheme's benefits, Indian authorities will not alter that outcome through MAP.

In anti-avoidance cases, India will allow international discussions where taxpayers argue that the application of domestic rules conflicts with a tax treaty. However, negotiations will be limited to examining whether the resulting taxation violates the treaty and whether the other country should provide relief.

The guidelines also clarify that restrictions on tax authorities and appellate tribunals deciding issues pending before the BAR apply only to Indian residents. Non-residents can therefore seek MAP while their cases are pending before the board. MAP allows tax authorities in two countries to resolve disputes involving double taxation or taxation inconsistent with their tax treaty. India will continue to endeavour to resolve such cases within an average of 24 months.

Once a settlement is reached, taxpayers must accept it and provide proof of withdrawal of pending appeals within one month from the end of the month in which they receive the communication.

Tax officers must implement the settlement within one month from the end of the month in which they receive instructions.