Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
In news: Finland-headquartered Nokia has invoked the mutual agreement procedure (MAP) under the India-Finland Double Taxation Avoidance Agreement, to resolve the Rs 2,000-crore tax dispute with the Indian tax department.
Now, the competent authorities of the two countries — India and Finland — will sit at the negotiating table and decide how the dispute should be resolved.
What’s the issue?
Indian income tax department had slapped a Rs 2,000-crore tax demand on Nokia India over alleged default on tax deduction at source (TDS) on software-related payments made to Nokia Finland for six years. The IT department had concluded that payments made by Nokia India to Nokia Finland for software downloads — which got embedded in the Nokia handsets manufactured in India — were taxable in India as royalty.
What is MAP?
MAP is an alternative available to taxpayers to resolve disputes giving rise to double taxation, whether juridical or economic in nature. An agreement for avoidance of double taxation between countries would give authorisation for assistance of Competent Authorities (CAs) in the respective jurisdiction under MAP.
The main benefit of pursuing MAP is the elimination of double taxation (either juridical or economic). The MAP resolution, once accepted, eliminates protracted litigation.
