The CBDT has issued Instruction No. 01/2017 dated 04.01.2007 stating that on receipt of a formal request for suspension of collection of outstanding tax from a taxpayer who is a resident of Sweden and where MAP has been invoked through the Competent Authority of Sweden, the Assessing Officers are required to keep the enforcement of collection of outstanding taxes in abeyance for a period of two years in respect of such taxpayers subject to fulfillment of certain conditions.
Instruction No. 01/2017
F.No. 500/5/2016-APA-II
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Foreign Tax and Tax Research-I Division
APA-II SectionNew Delhi, dated 4th January, 2017
To
All Principal CCsiT and CCsITMadam/Sir
Subject: India-Sweden Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion (DTAC or the Convention) – Suspension of Collection of Taxes during Mutual Agreement Procedure (MAP) – Regarding
Attention is invited to Article 26 of the India – Sweden DTAC, which provides for Mutual Agreement Procedure (MAP) between the Competent Authorities of India and Sweden for avoiding taxation which is not in accordance with the Convention. During the pendency of MAP, recovery of tax demand could lead to potential hardships for the taxpayers as tax demand is yet to attain finality. 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. In terms of the MOU, the collection of outstanding taxes in case of a taxpayer whose case is pending in MAP before the Competent Authorities of India and Sweden, 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, as per the provisions of the Income-tax Act.
2. On receipt of a formal request for suspension of collection of outstanding tax from a taxpayer who is a resident of Sweden and where MAP has been invoked through the Competent Authority of Sweden, the Assessing Officers are required to keep the enforcement of collection of outstanding taxes in abeyance for a period of two years in respect of such taxpayers subject to fulfillment of the following conditions:
(i) the Foreign Tax and Tax Research I (FT&TR I) Division of the Central Board of Direct Taxes confirms the pendency of MAP; and
(ii) the taxpayer furnishes a bank guarantee to the Assessing Officer in the model draft format annexed to the MoU for an amount calculated in accordance with the manner indicated therein.
3. Further, the provisions of the MoU shall also apply to an Indian resident taxpayer in cases involving transfer pricing adjustments, where MAP has been invoked by the resident of Sweden through the Competent Authority of Sweden.
4. The effect of the MoU is that the furnishing of the bank guarantee should be treated as sufficient arrangement for exercising discretion by the Assessing Officer for extension of time limit for payment of taxes in terms of sub-section (3) of Section 220 of the Income-tax The extension, however, shall subsist only for two years from the date on which communication from FT&TR I Division about the invocation/pendency of MAP is received by the Assessing Officer. This period of two years may be extended through mutual agreement between the Competent Authorities of India and Sweden and any such extension will be communicated to the Assessing Officer by FT&TR I Division of the CBDT. However, in no case shall the aggregate periods for which collection is suspended exceed five years.
5. In case the Competent Authorities of India and Sweden agree that there is no resolution possible, an intimation to this effect shall be given to the Assessing Officer who shall, thereafter, be entitled to enforce recovery of the taxes (including interest and penalty, if any). If the taxpayer fails to pay the taxes (including interest and penalty, if any), the Assessing Officer shall be entitled to invoke the bank In case the time limit of two years has expired and no communication has been received from FT&TR I Division about MAP resolution, the Assessing Officer, before proceeding to making recoveries or invoking the bank guarantee, shall seek inputs from FT&TR I Division about the status of MAP in such cases. Recovery of taxes (including interest and penalty, if any) may only be proceeded with after getting confirmation from FT&TR I Division that no extension beyond two years has been granted through mutual agreement between the Competent Authorities of India and Sweden.
6. In cases where a resolution of dispute is arrived at by the Competent Authorities of India and Sweden after mutual consultation, the taxes (including interest and penalty, if any)payable by the Indian taxpayer shall be determined by the Assessing Officer in terms of such resolution, as per the procedure laid down in Rule 44H of the Income Tax Rules, After the revised notice of demand is sent to the taxpayer, the amount shall be recoverable from the taxpayer. In case the taxpayer fails to pay the demand, the bank guarantee so furnished shall be invoked after seeking the consent of the Indian Competent Authority, which shall grant the same after intimating its counterpart in Sweden.
7. The Assessing Officers as well as their controlling officers are advised to keep a close watch on the limitation of the bank guarantee furnished under the For this purpose, a control register should be maintained in the office of the Assessing Officers and the same may be periodically inspected by the jurisdictional Additional or Joint CIT and/or the jurisdictional Principal CIT or CIT.
8. A copy of the MoU, along with its Annexure containing the model draft format of the bank guarantee, is enclosed.
9. These instructions are issued under section 119 of the Income-tax Act and the same may be brought to the notice of all the officers in your charge.
(Dinesh Antil)
Under Secretary [(FT&TR-I(2)]
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