India And The US Flesh Out Double Tax Treaty

by Lorys Charalambous, Tax-News.com, Cyprus

03 October 2002

At a meeting in Delhi last week, Indian and US tax officials reached agreement on the deferral of tax payments for US companies in India and Indian companies in the US, in cases where there is a dispute over tax liabilities, until the case is settled by the competent authority.

The two countries signed a Memorandum of Understanding Regarding Deferment of Asessment and/or Suspension of Collection of Taxes During Mutual Agreement Procedure.

The new provision is a departure from the existing provisions of the tax treaty between India and the US which allows recovery of tax even if a complaint is pending before the competent authority. However, the new procedure requires the parties to furnish a bank guarantee for the disputed tax liability.

Meanwhile, in Washington this week, the Second Sub-Cabinet Meeting of the India-United States Financial & Economic Forum took place.

Senior U.S. and Indian policymakers discussed economic and financial developments and global efforts to combat terrorist financing. India’s Finance Secretary S. Narayan led the Indian delegation, which included officials from the Ministry of Finance, the Reserve Bank of India, and the Securities Exchange Board of India. The U.S. was led by Treasury’s Assistant Secretary for International Affairs Randal Quarles and Federal Reserve Governor Donald Kohn; the U.S. delegation included officials from the Treasury Department, the Federal Reserve Board, the Office of the Comptroller of Currency and the Securities and Exchange Commission.

The discussions covered Macroeconomic policy, Financial sector issues, and Terrorist Financing Issues. The two sides pledged to continue close cooperation in the fight against terrorist finance and to protect charitable non-profit organizations from terrorist abuse. They noted that alternative remittance systems were particularly vulnerable to abuse by terrorists and agreed to enhance information exchange on such systems, their weaknesses, and ways to deal with such transactions. To prevent abuse of the formal financial sector, both sides acknowledged the importance of establishing a financial intelligence unit (FIU) to monitor suspicious financial activity and to record and share financial information in accordance with international standards promoted by the Financial Action Task Force (FATF) and the Egmont Group. Toward this end, the Indian government’s ongoing efforts to establish an FIU were applauded.

Both sides said they were pleased with the discussions and agreed that the discussions laid a solid foundation for the upcoming Cabinet–level meeting in New Delhi of the India–U.S. Financial and Economic Forum. The delegations agreed to continue discussions on the following areas in future meetings:

• Strengthening tax administration;
• Examining experiences in Asset Reconstruction Companies;
• Continuing cooperative information exchange, especially on financing of terrorist groups and establishing Financial Intelligence Units;
• Sharing experiences on pension reform, risk containment measures in derivatives, and commodities futures;
• Strengthening the legal framework for investor protection, investigation and enforcement procedures and codes for corporate governance.

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