India and South Korea have signed a new memorandum of understanding (MoU) on suspension of collection of taxes during pendency of Mutual Agreement Procedure (MAP). This MoU will help to ease the burden of double taxation for taxpayers in both the countries during the pendency of MAP proceedings. 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.
Besides, both the countries have also agreed that the transfer pricing cases will be taken up for MAP under the revised Double Taxation Avoidance Agreement (DTAA) between India and Korea. 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.
MAP 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.