Why in News?
The Income Tax Department has confirmed that India and Finland have reached an agreement under the Mutual Agreement Procedure (MAP) system.
FACTS FOR PRELIMS
Nokia India was issued a demand notice for ₹2,500 crore in 2013, which was thereafter reduced to ₹1,600 crore. The Income Tax Department also raised a tax demand of ₹10,000 crore tax on Nokia Corporation for the same transaction, which has now been dropped under the MAP agreement.
Under the MAP system, settling an issue between two countries means closing all pending tax proceedings as well.
Mutual Agreement Procedure
MAP is an alternative available to taxpayers to resolve disputes giving rise to double taxation.
The main benefit of pursuing MAP is the elimination of double taxation (either juridical or economic). The MAP resolution, once accepted, eliminates protracted litigation.
Double Taxation Agreements are usually concluded between the governments of two countries. These countries are then referred to as the Contracting States or Contracting Parties to such an agreement.MAP is provided for in an Article in a Double Taxation Agreement (DTA) and can involve matters containing juridical double taxation cases, as well as inconsistencies in the interpretation or application of a DTA.
Double Taxation Avoidance Agreements
Double taxation avoidance treaties comprise of agreements between two countries, which, by eliminating international double taxation, promote the exchange of goods, persons, services and investment of capital.