Tax Respite For Cos Engaged In Trade With US

New Delhi: In a respite to Indian companies, the Income-Tax Department has decided to suspend collection of taxes if the Mutual Agreement Procedure is appealed by a US-based entity under the Indo-US Double Taxation Avoidance Convention (DTAC). Article 27 of the Indo-US DTAC allows for Mutual Agreement Procedure for avoidance of double taxation. To avert hardship to taxpayers, the competent authorities of India and the US had entered into a memorandum of understanding (MoU) regarding suspension of collection during the pendency of MAP in 2003.

In order to avoid hardship to Indian resident taxpayers especially in cases involving transfer pricing, where the Indian resident entity is liable to pay taxes on such income which may have been charged to tax in the hands of the associated entity in the US, it has been decided to extend the applicability of the MoU to such Indian entities during the pendency of the MAP.