NEW DELHI: India and Korea have inked a new memorandum of understanding on suspension of collection of taxes during pendency of mutual agreement procedure.
This MoU will relieve the burden of double taxation for taxpayers in both the countries during the pendency of MAP proceedings.
MAP or Mutual Agreement Procedure is an alternate dispute resolution mechanism that allows competent authorities of India and its treaty partner to negotiate a mutually acceptable settlement. Its main advantage is elimination of double taxation arising out of transfer pricing tax disputes, existence of Permanent Establishment, and characterisation of income and attribution of profits to such establishments.
Under MAP, which is a preferred way to settle cross-border tax cases globally, the two sides can negotiate settlement on a case that can subsequently be taken off from the formal legal process. The resolution process draws up parameters for taxation in one country for which credit would be available in another.
Both sides have also agreed that transfer pricing dispute cases will be taken up for MAP under the revised DTAA between India and Korea, a central board of direct taxes statement said on Thursday.
“This is a step towards ease of doing business in India for Korean companies as it will relieve economic double taxation and promote cross-border trade and investment,” the statement said.