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India and Korea: New memorandum suspends tax collection during MAP

14 December 2015

Amelia Schwanke

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India and South Korea have signed a new MoU [memorandum of understanding] tax treaty on December 9 to strengthen the ease of doing business in each country.

The signing took place at a meeting of Indian and Korean delegations, headed by the revenue secretary and the commissioner, hosted by Prime Minister Narendra Modi and President Park Geun-hye in South Korea.

Sagar Wagh, senior consultant at EY in New Delhi, welcomed the revised agreement.

"Entering into the MoU to revise the tax treaty demonstrates the commitment from both countries to move towards proactive dispute resolution, remove double taxation and encourage cross-border investments," said Wagh.

"This will encourage more taxpayers to opt for the MAP [mutual agreement procedure] route, as the MoU will provide assured savings in immediate cash outflow, which is a major concern of the taxpayers post-receiving the tax audit order and demand from revenue authorities."

The MoU will reduce the likelihood of double taxation for taxpayers in both countries by suspending the collection of taxes if MAP proceedings are still pending.

A joint statement from the meeting said: "The two sides hoped for increased exchange of India-Korea parliamentary delegations. They shared the view that the exchange of India-Korea parliamentary delegations will contribute towards greater interaction and understanding between the two parliaments."

Transfer pricing cases

Despite a press statement confirming both countries have agreed that transfer pricing dispute cases will be taken up for MAP under the revised treaty, Wagh believes that there is still not a clear provision for the corresponding adjustment of transfer pricing cases under "article 9(2) as per model convention".

"The Indian tax administration does not admit MAP cases under the India-Korea tax treaty involving transfer pricing disputes," said Wagh. "This position will remain the same even after signing of this MoU."

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