Law Office of Charles W. Cope, PLLC | Differences between India and the United States on Significant Treaty Issues Continue
This links to the home page
Tax Insights Blog
  • Differences between India and the United States on Significant Treaty Issues Continue
    February 2013
    The U.S. tax press reports that the U.S. competent authority, Mike Danilack, while speaking at a tax conference in California in early February 2013, announced that, after consultations with his counterparts in India, he was pessimistic that India and the United States could conclude bilateral APA's given their current positions on some significant transfer pricing issues.[1] Danilack said that India and the United States disagree on some fundamental points, including choice of transfer pricing method (cost-plus v. profit split) and the appropriate treatment of risk in a transfer pricing analysis.
    Danilack reportedly also stated that he did not believe that U.S. companies should pursue either bilateral or unilateral APA's with India given the current differences between the two competent authorities. India and the United States have a significant backlog of unresolved cases in mutual agreement procedures (“MAPs”). This backlog reflects the countries’ differences in approach and their inability to reach compromises in order to avoid double taxation.
    These differences and their effect on the dispute resolution process concern U.S. industry.  On February 22 six U.S. trade organizations[2] wrote to Sanjay Kumar Mishra of the Indian Department of Revenue and Mike Danilack expressing their concern about the countries’ differences and asking them to work to resolve the differences. The letter states in part:
    The dearth of agreements between the Indian and U.S. Competent Authorities, despite frequent discussions, is without precedent in our experience. While India's new APA program helpfully acknowledges the need for improvement, we are not optimistic that APAs alone can restore the bilateral relationship to working order if substantive points of disagreement and procedural issues are not first addressed.
    All investors need certainty in advance regarding their tax treatment and assurance that cross-border disputes will be promptly resolved on a principled basis. In the interest of bilateral trade and investment, we urge you to do everything possible to resolve the current impasse . . . ..
    If the MAP backlog continues to grow and there is no sign that India and the United States can begin to resolve their transfer pricing and permanent establishment cases, the growth of direct investment in India by U.S. companies almost certainly will diminish as U.S. companies shift their investment to more attractive jurisdictions. 
    [1] Daily Tax Report, 23 DTR G-6 (February 4, 2013).
    [2] The letter was signed by the Investment Company Institute, the National Foreign Trade Council, the Securities Industry and Financial Markets Association, the Software Finance and Technology Executives Council, the United States Council for International Business, and the U.S.-India Business Council