The Dispute Settlement Mechanism under the Mutual Agreement Procedure

“Mutual Agreement Procedures (MAP) are a formalized set of rules between nations codified as treaties to resolve disputes usually arising as a result of double taxation or taxation that violates trade agreements between the nations."

MAP is a dispute resolution mechanism provided for under the Double Taxation Avoidance Agreement (DTAA) and is a special procedure, which is outside the scope and purview of the domestic tax regulations. It is one of the forms of Alternate Dispute Resolutions and involves a process of negotiations. The MAP article in tax conventions allows designated representatives (the “competent authorities") from the governments of the contracting states to interact with the intent to resolve international tax disputes.  These disputes involve cases of double taxation as well as inconsistencies in the interpretation and application of a convention. [1] 


Article 25 of the Mutual Agreement Procedure in the OECD model is read in tandem with the UN model except with regards to the method of dispute resolution as enunciated in the 4th paragraph. [2] 

If any tax is levied which is not in consonance with the provisions of the double tax avoidance agreement, the aggrieved party has an option to seek the assistance of the State of which he is a resident or national of. The taxpayer must submit the request for a MAP within three years of the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.

The competent authority on hearing the plea if satisfied, that there is a prima facie case for dispute settlement, may resort to the Mutual Agreement Procedure by referring the dispute to the competent authority of the contracting state. Thereinafter, an agreement is reached by the competent authorities and the article provides for no time limit for reaching upon such a resolution.

The Competent Authorities of the Contracting States are to resolve difficulties or doubts arising as to interpretation or application of the DTAA. The article also provides for consultation for elimination of double taxation in cases not provided for in the DTAA (para3).

The Competent Authorities may communicate with each other in writing or have consultations by evolving bilateral methods and conditions or they may even directly without any diplomatic channels. [3] 


A typical DTA Agreement between India and another country usually covers persons who are residents of India or the other contracting country, which has entered into the agreement with India. A person, who is not resident either of India or of the other contracting country, would not be entitled to benefits under DTA Agreements.

The Government of India has entered into Double Tax Avoidance Agreement agreements with several countries, including Australia, Austria, Bangladesh, Belgium, Brazil, Bulgaria, Canada, China, Cyprus, (erstwhile) Czechoslovakia, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Indonesia, Israel, Italy, Japan, Kenya, Korea (South), New Zealand, Norway, Philippines, Poland, Romania, Singapore, Sri Lanka, Sweden, Switzerland, Syria, Tanzania, Thailand, Turkey, U.A.E., United Kingdom, United States of America, U.S.S.R. (Russian Federation) Vietnam and Zambia.

Rule 44G [4] in the Income-Tax rules details that the application for initiating MAP proceedings has to be made in Form 34F and the action based on the application shall be made by the Competent Authority of India as enunciated in Rule 44H.The Form requires the taxpayer to give relevant details of the case more specifically on the dispute and the documents based on which such a claim is being made. Furthermore, Rule 44H [5] prescribes that the Competent Authority based on such an application would take up the matter with the other Country’s authority and endeavor to arrive at a resolution. Competent Authority in India is the person authorized by the Central Government for discharging the functions as such.


According to Article 25 of the Model Tax Convention, the taxpayer must submit the request for a MAP within three years of the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.

It is to be noted here that the provision whereby the starting point of the three-year time limit is fixed as the date of the notification of the action resulting in taxation not in accordance with the provisions of the Convention is to be interpreted in the way which is most favorable to the taxpayer. Thus, even if such taxation should be directly charged in pursuance of an administrative decision or action of general application, the time limit begins to run only from the date of the notification of the individual action giving rise to such taxation, that is to say, under the most favorable interpretation, from the act of taxation itself, as evidenced by a notice of assessment or an official demand or other instrument for the collection or levy of tax.

Common causes which can be referred under MAP

Some of the common causes which can formally be referred for resolution under the Mutual Agreement procedures include the following [6] :

Issues relating to Permanent Establishment (PE) held out as per Article 5.

Questions relating to attribution of profits to a PE especially on the deduction in respect of proportion of executive and general administrative expenses.

Issues on how source based taxation would be made in cases where there is a Relationship of Associate Enterprise specifically, on the excess part of interest as per Article 11 or Royalties and Fees for Technical Services as per Article 12.

Cases relating to taxpayer’s residence situation where the convention has not been properly applied such as determination of residence under Article 4 or short stay exemption under Article 15.

Article 25 also provides for machinery to enable Competent Authorities to discuss with one another on matters relating to transfer pricing adjustments. Specifically, where the Treaties provide for adjustment under Article 9(2), and then MAP process gives the mechanism to arrive at corresponding adjustment in the other Country thereby avoiding jurisdictional double taxation due to different legal principles adopted. But in cases of presumptive tax, double tax avoidance agreements shall have no application. [7] 

The revenue authorities may refuse to consider the application for MAP on specific situations which have been enumerated below:

When the tax payer has failed to provide sufficient information.

The resolution which has been sought and the interpretation proposed contradicts with that of the national revenue authorities.

When there is a clear contravention of domestic laws.

Time limit for the MAP application has elapsed.

Taxpayer is guilty of tax evasion or fraud.

The amount involved in the conflict is negligible.

Recent Statistics [8] 

On a detailed survey the position that emerges is that at the end of 2007, the total number of open MAP cases reported by OECD member countries was 2655, which is a 13.3 % increase as compared to 2006. For the OECD member countries for which data was provided, the average time for the completion of MAP cases closed in 2007 was 18.91 months, a 14.4 % decrease as compared to 2006. [9] 

The MAP statistics for the 2008 and 2009 reporting periods considered in the aggregate depict, a strong a continuous increase from 2006 to 2009 in MAP inventories in the OECD member countries. As far as the countries reporting them, the average cycle times for cases completed, closed or withdrawn are almost the same in 2006, 2008 and 2009, with a slight decrease in 2007. The separation of reported MAP cases into cases with other OECD member countries and cases with non-member economies shows, in general, that more than 90% of OECD member countries’ MAP inventories are cases with other OECD member countries.


According to the provisions of article 25, MAP can be invoked by the aggrieved party only in one State, of which he is a resident or a national. The domestic law of states does not make any difference between a resident and a non-resident thus it is felt that the remedy should not only be limited to the State of which the party is a member. Moreover, the three year time limit stipulated in the article for the aggrieved party to apply for the MAP proceedings is unnecessarily circumventing the remedy as it is not always possible to figure out the date on which such an action arose. Supreme court has upheld that “limitation is not inexorable and that delay can be condoned in suitable cases under general laws; moreover limitation should not be invoked to deny justice in a deserving case." [10] 

The tax payers lack the necessary confidence as to the efficacy of this procedure and usually apply for the Mutual Agreement Procedure as a last resort when all the other remedies fail. Lack of knowledge amongst the tax payers is another tentative drawback and the parties are not aware of the process even in cases where it is more effective than other domestic remedies. A point to be noted here is that MAP is available in addition and not in substitution of the remedies before the domestic courts or tribunals. [11] 


The inability to provide for all steps possible to facilitate a final resolution of issues arising under treaties is one of the principal obstacles to ensuring an efficient MAP. It has caused taxpayers to hesitate in making the resource commitment to enter into the MAP and likewise provides no incentive to competent authorities to take all steps necessary to ensure a speedy resolution of the issues involved. [12] 

The MAP can thus be improved by supplementing it with additional dispute resolution techniques [13] which can help to resolve issues which have prevented the countries from reaching agreement in a MAP. This would help in resolving international tax disputes to the greatest extent possible and they can be resolved in a final, principled, fair and objective manner for both the countries and the taxpayers concerned. Thus, reducing the number of unresolved cross-border tax disputes in this way is clearly an important goal. Recourse to these techniques, however, must be an integral part of the mutual agreement procedure and should not constitute an alternative route to solving tax treaty disputes between States, which would risk undermining the effectiveness of the mutual agreement procedure. The techniques are aimed at ensuring that the competent authorities are able to offer to the taxpayer an agreed solution to the case which he has presented. On the other hand, where the competent authorities are able to resolve their differences as to the application of the treaty without recourse to supplementary techniques, there is no further need for applying such techniques in that case.

The Manual on Effective Mutual Agreement Procedures (MEMAP)

The Manual on Effective Mutual Agreement Procedures (MEMAP) is an attempt to improve the functioning of existing international tax dispute procedures by developing supplementary dispute resolution mechanisms. MEMAP aims to act as a maneuver to increase awareness of the MAP process by providing tax administrations and taxpayers with basic information on the operation of MAP and identify best practices for MAP without imposing a set of binding rules upon the member countries. The MEMAP explains the various stages of the mutual agreement procedure, discusses various issues related to that procedure and, where appropriate, describes best practices.

The MEMAP is to be developed for both tax administrations and taxpayers. Furthermore, the positions taken in the Manual are not to be binding on member countries but would reflect the analysis done in connection with the particular issue. The MEMAP would discuss appropriate practices and possible alternative approaches to issues considered by the Committee. It further explains the various stages of the mutual agreement procedure, discusses various issues related to that procedure and, where appropriate, describes best practices. This manual is available online in electronic form over the internet. [14] 

Thus, the overall aim of this manual is continued improvement of the MAP process as it applies in countries’ treaty relationships, for both OECD Member countries and non-OECD economies and promotion of greater consistency in how MAP issues are dealt with, and further improving upon the effectiveness and timeliness of the process.


MAP provides for a complete and determinative one-time cost effective alternative to multiple litigation process and such proceedings are binding on revenue authorities. One of the benefits of MAP is that it is not binding on the taxpayer and he can continue with the domestic remedies. Although MAP is binding for specific issues and years its persuasive value continues for subsequent years. However, this procedure has certain limitations too. According to the well-established international judicial opinion, the 'Mutual agreement procedure's in addition to and not in substitution of the remedies before domestic Courts or Tribunals and as the participation of taxpayers in this proceeding is minimal and indirect it can result in misconception of facts and legal aspects involved in the dispute concerned. Moreover it is not incumbent on Competent Authority to reach a resolution; he may agree to disagree on the matters involved. There is no time limit or schedule prescribed for the procedure and in case the applicant refuses MAP resolution the entire process fails and results in substantial waste of time and energy. Another limitation is the post resolution implementation of MAP which proves to be a cumbersome process.