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Instruction No. 7/2008 dated 24-6-2008
India-Danish Double Taxation Avoidance Convention(DTAC)- suspension of collection of taxes during Mutual Agreement Procedure
Reference is invited to Article 25 of Indo-Danish DTAC regarding Mutual Agreement Procedure (MAP) which provides that in a case where a resident of a Contracting Stateconsiders that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the Convention, he may, notwithstanding the remedies provided by the domestic law of the States, present his case to the competent authority of the Contacting State of which he is a resident. It also provides thatthe CompetentAuthorities ofthe two Contracting States shall endeavour to resolve the case "by mutual agreement with a view to avoidance of taxation, which is not in accordance with the Convention. In this context references have been received regarding difficulty being faced by taxpayers due to enforcement of collection of outstanding taxesduring the pendency of theMutual Agreement Procedure between the two Competent Authorities.
2. Article 10 of the Indo-Danish DTAC deals with adjustment of profits that may be made fortax purposeswhere transactionshave been entered into between associatedenterprises on other than arm's length terms. Paragraph 2 of Article 10 provides that where a Contracting State in the case of its resident enterprise taxes profits on which an enterprise of the other Contracting State has been charged to tax in the other State but such profit was taxable in the firstmentioned State if the transactionsbetween the two enterprises had beenunder arms length condition, then the other Contracting State shall make an appropriate adjustment to the amount of tax charged on those profits. In determining such adjustment, due regard shall be had to the other provisions of the Convention if necessary and the competent authorities of the two States shall, if necessary, consult each other.
3. In order to avoid the unintended hardship to the taxpayers, as well as for efficient management of collection of revenue, the Competent Authorities of India and
(i) is a resident of
(ii) an Indian resident entity in cases involving transfer pricing,
and in whose case MAP is invoked through the Danish Competent Authority and has been admitted by the Indian Competent Authority.
4. A copy of the MOU is enclosed along with a model draft of bank guarantee to be furnished by the taxpayer. These are self-explanatory.
5. On receipt of a formal request in terms of this MOU from a taxpayer being a resident of Denmark or an Indian resident entity (referred to in paragraph 2 above) in a case where MAP has been invoked through the Danish Competent Authority and the same has been admitted by the Indian Competent Authority, the Assessing Officer (AO) concerned is required to keep the enforcement of collection of outstanding taxes, including any related interest or penalties, in abeyance in respect of such taxpayers for the assessment years which are the subject of MAP proceedings-
(i) after obtaining a confirmation regarding pendency of MAP from the Foreign Tax & Tax Research Division of Central Board of Direct Taxes; and
(ii) on receipt of a Bank Guarantee in the model draft format annexed to the MOU for an amount calculated in accordance with the manner indicated therein.
6. The effect of the Memorandum is that the furnishing of the bank guarantee should be treated as sufficient arrangement to qualify for exercising discretion by the Assessing Officer for extension of time limit for payment of taxes. The extension however, shall subsist until the case is resolved under MAP. In case the Competent Authorities agree that there is no resolution possible, intimation to this effect shall be given to the Assessing Officer who shall, thereafter be entitled to invoke the guarantee in case the tax payer fails to pay the demand.
7. In cases where a resolution of dispute is arrived at by the Competent Authorities after mutual consultation, the guarantee furnished shall be invoked in the following circumstances:-
(i) the taxpayer does not give his acceptance to the MAP resolution, or
(ii) the taxpayer gives its acceptance to the MAP resolution and fails to pay the demand determined by the Assessing Officer in terms of the MAP resolution as per the procedure laid down in Rule 44H of the Income-tax Rules, 1962, and indicated in the revised notice of demand sent to the tax payer.
The Assessing Officer will, however, before invoking the guarantee seek the consent of the Indian Competent Authority, which shall grant the same after intimating its counter part in
8. The Assessing Officers, as well as the Joint Commissioners of Income-tax/Joint Directors of Income-tax/Additional Commissioners of Income-tax/Additional Directors of Income-tax/ Commissioners of Income-tax/ Directors of Income-tax, are advised to keep a close watch on the limitation of the guarantee furnished under the MAP.
9. These instructions, issued under section 119 of the Income-tax Act, may be brought to the notice of all officers in your charge.
[F. No. 480/12/2004-FTD-I]
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