India-Danish Double Taxation Avoidance Convention (DTAC ) - suspension of collection of taxes during Mutual Agreement Procedure – CBDT Instruction
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 Denmark have signed a Memorandum of Understanding ( MOU ) regarding suspension of collection of taxes during the pendency of MAP (Mutual Agreement Procedure ) . The MOU is applicable in case of a taxpayer who-
(i) is a resident of Denmark , or
(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.
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.
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 A.O. 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 A.O., who shall, thereafter be entitled to invoke the guarantee in case the tax payer fails to pay the demand.
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 counterpart in Denmark .
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 .
CBDT Instruction No. 7/2008 Dated 24 June, 2008