Income Tax Department’s announcement geared towards improving Ease of Doing Business
What has been done?
Income tax department has issued a clarification saying that it would allow mutual agreement procedures (MAPs) and advance pricing agreements (APAs) with all countries, abandoning a stance that disallowed such agreements with major trade partners like France, Germany, Italy, Singapore and South Korea
- India’s earlier stance meant that if treaties with a particular country did not contain a ‘corresponding adjustment’ clause, then the Indian revenue department would not enter into bilateral advance pricing agreements or mutual agreement procedures with those countries
- In other words, any transfer pricing disputes would be settled through domestic litigation instead of bilateral arbitration
What are MAPs and APAs?
APAs are meant to settle potential disputes in advance, while MAPs lay out the procedure to settle a dispute once it has happened