Tax recovery from Swedish cos under MAP resolution on hold

CBDT has suspended recovery of tax from Swedish companies whose disputes are being resolved through the MAP route, a move that will help in mitigating the hardship faced by such firms operating in India.

As per the CBDT guidance note, the tax demand will be kept in abeyance for two years if the Swedish companies furnish a bank guarantee of the disputed amount to the income tax authorities in India.

Over a dozen large Swedish companies including H&M, Volvo, Oriflame Holding, are operating in India and several of them are locked in disputes with I-T authorities.

"Considering the hardship faced by the taxpayers during the pendency of MAP, as well as for efficient management of collection of revenue, the competent authorities of India and Sweden have signed a memorandum of understanding (MoU) regarding suspension of collection of taxes during the pendency of MAP," the CBDT instruction said.

Under the MoU, the collection of outstanding taxes, in case of a taxpayer whose case is pending in MAP, would be kept in abeyance for a period of two years (extendable to a maximum period of five years through mutual agreement between the Competent Authorities of India and Sweden) subject to furnishing of a bank guarantee of an amount equal to the amount of tax under dispute and interest accruing thereon, it added.

Nangia & Co Managing Partner Rakesh Nangia said the instruction is a welcome move and will provide relief to Swedish companies doing business in India facing tax litigation with I-T authorities. "This instruction is intended to promote alternate dispute resolution measures. The interest of revenue has been duly safeguarded by providing that the Swedish company shall furnish a bank guarantee for the disputed tax demand," Nangia said. CBDT also said an Indian resident taxpayer, the provisions of the MoU shall apply to MAP cases involving transfer pricing adjustments.

Mutual Agreement Procedure (MAP) is a process under which, tax dispute of a non-resident is resolved by mutual discussion between competent authorities of two countries.

MAP is generally a lengthy process and during pendency of such proceedings, Indian tax authorities generally ask such non-residents/ foreign companies to pay entire amount or a substantial portion of disputed tax demand. This creates a financial burden on such foreign companies, if ultimately their income is decided to be not taxable in India by the Competent Authorities, experts said.