No MAP relief for taxpayers using safe harbour rules: CBDT

New Delhi: Taxpayers who have availed of the safe harbour provisions for specified international transactions cannot seek further relief under the mutual agreement procedure (MAP), according to the Central Board of Direct Taxes' (CBDT) updated guidelines on cross-border tax disputes.

In its 22-page guidance, the apex direct-tax policymaking body under the finance ministry has also clarified how disputes will be handled when the same tax issues are pursued through domestic appeals, advance rulings and settlement schemes.

MAP is a dispute-resolution mechanism under India's double taxation avoidance agreements (DTAAs). It allows taxpayers to seek intervention by the competent authorities of two countries when a tax action results, or could result, in taxation inconsistent with the applicable treaty or double taxation. Such disputes commonly involve transfer pricing adjustments, determination of a permanent establishment and attribution of profits to overseas operations.

The updated guidance is significant as India expands its network of free trade agreements (FTAs), having signed trade deals with the UK, Oman and New Zealand, besides agreements with the UAE, Australia and the European Free Trade Association. India has also concluded FTA negotiations with the European Union and is pursuing trade talks with several other partners, including Canada, Chile and Israel. As cross-border trade and investment expand, clarity on international tax disputes and mechanisms to avoid double taxation becomes increasingly important for businesses.

How disputes will be handled

On safe harbour, the guidance bars a taxpayer who has opted for the provisions from seeking MAP relief for the covered transactions. However, if a foreign tax authority’s decision disturbs the return filed in India under safe harbour, the foreign associated enterprise may seek MAP through its own competent authority, which will notify India. India will allow MAP, but will keep the safe harbour price and only ask the other country for relief, it noted.

The CBDT has clarified that Indian authorities will not deviate from ITAT orders on issues decided on merits. If the tribunal rules in favour of the taxpayer, the MAP case will be closed. If it remands the matter for fresh adjudication, taxpayers can seek MAP after a fresh order is passed.

According to the document, if a resident has already settled under Vivad se Vishwas (VsV) 2020 or 2024, India will not revisit that settlement in MAP. It may just ask the other country to provide relief, usually when the overseas associated enterprise seeks MAP. If a non-resident has settled under the VsV scheme on the same issue, MAP will not be available for that issue.

Indian authorities will not grant MAP access to taxpayers who have already availed the scheme's benefits on the same issue. However, overseas associated enterprises can seek MAP, with Indian authorities agreeing to the settlement outcome and seeking corresponding relief from the treaty partner. Where an Indian taxpayer has applied under the scheme but is yet to pay the applicable taxes, MAP access will be granted. If the taxpayer subsequently avails the scheme's benefits, the settlement outcome will prevail.

On advance rulings, the guidance allows MAP access to taxpayers who have obtained a ruling from the board for advance rulings (BAR). However, Indian authorities will not deviate from the BAR's decision on issues decided on merits and may instead seek corresponding relief from the treaty partner.

The guidance also covers withholding-tax disputes. Non-residents can seek MAP access against tax deduction orders under Section 398 of the Income Tax Act, 2025. However, discussions between the two countries' competent authorities can begin only after an assessment order is passed in the non-resident's own case and the taxpayer considers it contrary to the applicable treaty.

The CBDT has also asked taxpayers to keep competent authorities informed about material developments, including changes in documents submitted earlier and the status of parallel proceedings in India or overseas. Sharing relevant information with both authorities will help "ensure information symmetry" and avoid differences in their understanding of the facts.

The updated guidance incorporates changes under the Income Tax Act, 2025 and Income Tax Rules, 2026, replacing the earlier guidance issued in August 2020 and updated in June 2022. Under most Indian tax treaties, taxpayers have three years from the first notification of the action resulting in treaty-inconsistent taxation to file a MAP application. Indian residents must use Form 55 under Rule 121 for tax years 2026-27 onwards, while Rule 44G of the repealed Income Tax Rules, 1962, will continue to apply to earlier assessment years.

India will endeavour to resolve MAP cases within an average of 24 months, though the CBDT clarified that this is not a guarantee. After a resolution is communicated, taxpayers have one month from the end of that month to convey acceptance and submit evidence of withdrawal of pending domestic appeals. Assessing officers will have a corresponding one-month period to give effect to the resolution.

The guidance also clarifies that where its provisions conflict with domestic laws, rules, circulars or applicable tax treaties, the relevant legal and treaty provisions will prevail.

Tax experts said that the CBDT's consolidated MAP guidance for 2026 would provide greater certainty to multinational companies by clarifying the interaction between international tax dispute resolution and domestic tax proceedings.

Nitin Narang, partner, transfer pricing at Nangia & Co LLP, said the guidance aligns treaty dispute resolution with the Income Tax Act, 2025 and Income Tax Rules, 2026, while clarifying the treatment of parallel litigation and safe harbour provisions.

“The guidance strikes a balance between taxpayer facilitation and procedural discipline. While it provides greater clarity on the interaction between domestic tax appeals, Safe harbour rules and treaty-based dispute resolution, it also places greater responsibility on taxpayers to keep competent authorities informed about developments in parallel proceedings. This should make India's MAP framework more predictable and accessible for multinational businesses," Narang said.