MNC tax: Delays plague mutual agreement process


Mumbai: India’s significant experience in resolving international tax disputes under the mutual agreement procedure (MAP) has been recognised. However, the country has been found lacking in being able to resolve such disputes within the recommended two-year period.

These observations are contained in a peer review report covering India’s MAP programme, released by the Organisation for Economic Co-operation and Development (OECD) on October 24. The MAP is a bilateral negotiation process between the competent authorities of two countries to settle international tax disputes. If a multinational company (MNC) is of the view that its income has not been taxed according to the applicable tax treaty, it can opt for the MAP process to mitigate double taxation. MAP agreements are not made public, but a case that had hit the headlines was that of Nokia, where significant tax demands of above Rs. 2,000 crore were made on the Indian company.

The disputed transaction related to royalty payments made to the Finland-headquartered parent. The foreign company was also subject to huge tax demands on the same transaction. The case was settled between the Indian and Finnish competent authorities under the MAP process.


The MAP process is increasingly gaining in popularity and India had 763 cases pending as of December 2017. The peer review report points out that a large number of cases are submitted each year for MAP-based resolution, resulting in an approximate 10% increase in inventory of cases since January 2016.

EY-India international tax partner Rajendra Nayak explains, “The past two years have seen implementation of OECD’s ‘Base Erosion and Profit Shifting’ guidance on transfer pricing, which seeks to align the arm’s length principle with value-creation. This development and the challenges in the domestic law appeal process is the primary driver for MNCs considering the MAP process.”

“In the Indian context, since transfer pricing issues relating to outsourced software development or business process outsourcing have been highly contentious, a large number of MAP applications related to these activities,” adds Nayak.

Timelines for conclusion of the MAP programme is a major drawback, admits a tax expert attached to an MNC. The peer review report states that India took an average 36 months to settle international tax disputes. The report adds that there are no rules and specific timelines in place for requesting additional information by the competent authority and for the taxpayer to provide such information. This also leads to delays.

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