Article 24 – Non-Discrimination & Article 25 – Mutual Agreement Procedure (MAP)

MUTUAL AGREEMENT PROCEDURE – DEFINITION

MAP is a special facilitative procedure
set out in various tax treaties
that allows designated government representatives of Treaty partners (”referred to as Competent Authorities”)
to work together, and resolve
international tax disputes, including cases of double taxation
arising out of application of the Convention.

APPLICABILITY OF MAP TO VARIOUS ARTICLE

IMPLEMENTATION OF MAP UNDER INDIAN DOMESTIC LAWS

RULE 44G – APPLICATION FOR GIVING EFFECT TO THE TERMS OF ANY AGREEMENT

RULE 44H – ACTION BY INDIAN COMPETENT AUTHORITY ON REFERENCE FROM FOREIGN COMPETENT AUTHORITY

ARTICLE 27(1) OF INDIA US TREATY

Where a person considers
that the actions of one or both of the Contracting States
result or will result for him in taxation not in accordance with the provisions of this Convention,
he may,
irrespective of the remedies provided by the domestic law of those States,
present his case to the competent authority of the Contracting State of which he is a resident or national.
This case must be presented within three years of the date of receipt of notice of the action which gives rise to taxation not in accordance with the Convention.

ARTICLE 25(1) – KEY CHARACTERISTICS

ACTIONS OF CONTRACTING STATE

IF TAXATION NOT AS PER CONVETION, REMEDIES TO TAXPAYER IN INDIA

ARTICLE 27(2) OF INDIA US TREATY

The competent authority shall endeavour,
if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution,
to resolve the case by mutual agreement with the competent authority of the other Contracting State,
with a view to the avoidance of
taxation which is not in accordance with the Convention.
Any agreement reached shall be implemented notwithstanding any time limits or other procedural limitations in the domestic law of the Contracting States.

WHEN SHALL COMPETENT AUTHORITY ENDEAVOUR

ARTICLE 27(3) OF INDIA US TREATY

The competent authorities of the Contracting States shall endeavour
to resolve by mutual agreement
any difficulties or doubts arising as to the interpretation or application of the Convention.
They may also consult together for the elimination of double taxation in cases not provided for in the Convention.

SCOPE OF ARTICLE 27(3)

ARTICLE 27(4) OF INDIA US TREATY

The competent authorities of the Contracting States
may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.
The competent authorities, through consultations,
shall develop appropriate bilateral procedures, conditions, methods and techniques for the implementation of the mutual agreement procedure provided for in this Article.
In addition, a competent authority may devise appropriate unilateral procedures, conditions, methods and techniques to facilitate the above-mentioned bilateral actions and the implementation of the mutual agreement procedure.

BILATERAL PROCEDURES – PAYMENT OF DISPUTED TAX DEMAND PENDING MAP FINALISATION

INDIA – USA TREATY – MOU FOR STAY OF DEMAND – APPLICABILITY

FACTS CONSIDERED BY AO BEFORE GRANT OF STAY

ARBITRATION CLAUSE IN TREATY

KEY ISSUES / CHALLENGES

APPLICATION OF MAP FOR SUBSEQUENT YEARS

ARTICLE 24 – NON DISCRIMINATION

WHAT IS NON DISCRIMINATION?

Differences in tax treatment of two taxpayers
who are placed in identical/comparable situations
which result in Double taxation for the taxpayer
is Discrimination for tax purpose.

However, where the Treaty itself provides for different treatment
it is not covered under Article 24.

TYPES OF NON – DISCRIMINATION COVERED

ARTICLE 26 (1) – INDIA USA TREATY NON-DISCRIMINATION BASED ON NATIONALITY

Nationals of a Contracting State
shall not be subjected in the other Contracting State
to any taxation or any requirement connected therewith
which is other or more burdensome
than the taxation and connected requirements to which nationals that other State
in the same circumstances are or may be subjected.
This provision shall apply to persons who are not residents of one or both of the
Contracting States.

ARTICLE 24(1) – KEY CHARACTERISTICS

SAME CIRCUMSTANCES ?

“Are the circumstances same between A, B and C ?

“Are the entities under same circumstances ?

ARTICLE 26 (2) – INDIA USA TREATY DISCRIMINATION FOR PE TAXATION

Except where the provisions of paragraph 3 of Article 7 (Business Profits) apply,
the taxation on a permanent establishment which an enterprise of a Contracting State has in the other
Contracting State
shall not be less favorably levied in that other State than the taxation levied on enterprises of that other State
carrying on the same activities.
This provision shall not be construed as obliging a Contracting State to grant to residents of the other
Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil
status or family responsibilities which it grants to its own residents.

ARTICLE 26 (2) – INDIA USA TREATY PE TAXATION

PE – STAND ON THE FOLLOWING ASPECTS ?

ARTICLE 26 (3) – INDIA USA TREATY NON-DISCRIMINATION DEDUCTION OF EXPENSES

Except where the provisions of paragraph 1 of article 9 (Associated Enterprises), paragraph 7 of article 11 (Interest), or
paragraph 8 of article 12 (Royalties and Fees for Included Services) apply,
interest, royalties, and other disbursements paid by a resident of a Contracting State to a resident of the other Contracting
State shall,
for the purposes of determining the taxable profits of the first-mentioned resident, be deductible under the same
conditions as if they had been paid to a resident of the first-mentioned State.

ARTICLE 26 (3) – INDIA USA TREATY DEDUCTION OF EXPENSES

ARTICLE 26 (3) – INDIA USA TREATY DEDUCTION OF EXPENSES

ARTICLE 26 (4) – INDIA USA TREATY OWNERSHIP OF FOREIGN COMPANY

Enterprises of a Contracting State,
the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more
residents of the other Contracting State,
shall not be subjected in the first-mentioned State to
any taxation or any requirement connected therewith
which is other or more burdensome
than the taxation connected requirements to which other similar enterprises of the first-mentioned State are
or may be subjected.

NON APPLICABILITY OF ARTICLE 26(4)

INDIA GERMANY TREATY – DAIMLER CHRYSLER CASE

ARTICLE 26 (5) – INDIA USA TREATY

Nothing in this article shall be construed as preventing either Contracting State
from imposing the taxes described in Article 14 (Permanent Establishment Tax) or
the limitations described in paragraph 3 of Article 7 (Business profits).

NON DISCRIMINATION – SPECIFIC EXAMPLES