Understanding MAP Provisions in International Tax Dispute Resolution
Operation of Mutual Agreement Procedure (MAP) in tax treaties to resolve disputes between Contracting States concerning taxation not in accordance with treaty provisions. Learn about the initiation, handling, and resolution of cases through MAP, facilitating mutual agreement between competent authorities. Enhance your knowledge of tax treaty purposes, income taxation issues, and dispute prevention tools.
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DISPUTE RESOLUTION Sandra Knaepen Co-head of Tax Certainty Unit, International Cooperation and Tax Administration Division IFA Belgi 21 juni 2022
Agenda MAP in DBV BEPS ACTIE 14 Hoe zit het in Belgi ? Arbitrage 2
Alvorens we beginnen met remediren Voorkomen is beter dan genezen Tools Risk Cooperative compliance APA assessment, o.a. ICAP Joint audits 3
Purpose of the MAP provision Tax treaty purpose: allocation of taxing rights However, taxation may not be levied in accordance with the tax treaty Income of individuals Permanent establishment issues Transfer pricing Withholding taxes Mutual agreement procedures enable the competent authorities of each state to find a solution that eliminates taxation not in accordance with the tax treaty 5
Operation of MAP Initiation of the MAP Article 25(1) Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this convention Who? Consider What is an action? Result or will result Taxation not in accordance with Where? Irrespective of domestic law remedies What is presenting of a case? Obligation to present it to both competent authorities? he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of either contracting state. The case must be presented within three years from the first notification of the action resulting in accordance with the provisions of the Convention. When? What is the first notification of action? taxation not in
Operation of MAP Handling and resolving the case Article 25(2) The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution What constitutes a justified objection? When is it not possible to arrive at a satisfactory solution? to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. What is endeavour to resolve a case? When is a case resolved? Any implemented notwithstanding any time limits in the domestic Contracting States agreement reached shall be What are domestic time limits in this respect? law of the
Operation of MAP General MAP provisions Article 25(3) Concerns cases of a general nature, for example, applying to a category of taxpayers Not cases under Article 25(1) Examples: Definition of an ambiguous term Preventing disputes via bilateral APAs Procedures for refunds of withholding taxes Result binding? The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention. Cases that do not come in the scope of the convention Examples?
The new approach to dispute resolution Action 14 Minimum Standard 20 countries Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Slovenia, Spain, Sweden, Switzerland, the United Kingdom and the United States. Reporting of MAP Statistics Publication of MAP profile Supplementary commitment Peer review: Legal and administrative framework >90% of MAP cases Mandatory binding MAP arbitration Optional Best practices 10
BEPS Action 14: Minimum Standard Preventing Disputes Availability and access to MAP Resolution of MAP cases Implementation of MAP Agreements Treaties Bilateral Roll-backof bilateral APAs Ensure implementation of all MAP agreements Article 25(1)-(3) in treaties notification/consultation where ONJ 24 months on average Access to MAP TP cases, audit settlements, anti-abuse cases, where info provided by taxpayer; special remedies Adequate resources to CA function 25(1) 2017/2014 version Timely implementation Authority to resolve no influence by tax admin or policy 25(2) 2 - option Adequate performance indicators Publish MAP guidance, MAP profile transparency re arbitration 11 11
BEPS Action 14: Best Practices Preventing disputes Implement bilateral APA programmes Guidance on APAs in MAP guidance Publish MAP agreements of a general nature Develop global awareness Availability and access to MAP Facilitate recourse to MAP Suspension of collections during MAP Access in case of bona fide taxpayer-initiated foreign adjustments Guidance on multilateral MAPs Resolution of MAP cases Permit multi-year resolution through the MAP of recurring issues Publish info on relationship between MAP and domestic law Guidance on the consideration of interest and penalties in MAP Include art. 9(2) OECD MTC 12
State of play peer review process 82 jurisdictions to be reviewed 55+ deferred Stage 2 monitoring finalised, batch 10 yet to be published Stage 1 review finalised https://www.oecd.org/tax/beps/beps-actions/action14/ Results at: https://www.oecd.org/tax/beps/beps- actions/action14/ (scroll down) https://www.oecd.org/tax/beps/beps-actions/action14/ 13
MAP statistics Commitment to report MAP statistics in accordance with MAP statistics reporting framework All jurisdictions that are members of the inclusive framework to report MAP statistics under this framework http://www.oecd.org/tax/dispute/mutual-agreement-procedure-statistics.htm Statistics published on the OECD Website: http://www.oecd.org/tax/dispute/mutual-agreement- procedure-statistics.htm http://www.oecd.org/tax/dispute/mutual-agreement-procedure-statistics.htm 14
2020 MAP statistics overview Total MAP Caseload 7000 6000 5000 4000 3000 2000 1000 0 Start inventory 01.01.2020 Cases started in 2020 Cases closed in 2020 End inventory 31.12.2020 Cases pre-2016 or year of IF membership Cases post-2016 or year of IF membership
2020 MAP statistics - Global trends Cases started every year from 2016 to 2020* Cases closed every year from 2016 to 2020* 3000 3000 2500 2500 2000 2000 1500 1500 1000 1000 500 500 0 0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Transfer pricing cases Other cases Transfer pricing cases Other cases * The sum of MAP cases opened / closed of all jurisdictions does not eliminate the double counting
MAP cases closed in 2020 Average time necessary to close MAP cases Transfer pricing cases: 35 months Other cases: 18.5 months
Outcomes MAP cases closed in 2020 MAP outcomes no agreement including agreement to disagree Other cases Transfer pricing cases any other outcome 3% 4% (same as 2019) (8% in 2019) denied MAP access 3% (2% in 2019) objection is not justified 8% 14% (5% in 2019) (7% in 2019) withdrawn by taxpayer agreement that there is no taxation not in accordance with tax treaty 9% (same as 2019) resolved via domestic remedy 48% (46% in 2019) 20% unilateral relief granted (19% in 2019) 11% 55% (9% in 2019) (75% in 2019) agreement partially eliminating double taxation / partially resolving taxation not in accordance with tax treaty agreement fully eliminating double taxation / fully resolving taxation not in accordance with tax treaty
MAP Profile Purpose: promote transparency and dissemination of MAP programme published guidance Template for MAP profile adopted by the FTA MAP Forum, including: contact details of the competent authority for MAPs and APAs; and information on the implementation of the minimum standard and on some best practices http://www.oecd.org/tax/dispute/country-map-profiles.htm Document published on the OECD Website: http://www.oecd.org/tax/dispute/country-map-profiles.htm 19
Recurrent issues with MAP Access Time taken to resolve No guaranteed solution Black box 20
Impact BEPS Action 14 on these issues Minimum standard and peer review Access: 4 specific circumstances Time taken to resolve Resources 24-month average MAP statistics and MAP profile: transparency Additional commitment by 20 jurisdictions Arbitration 21
Remaining issues Still no access for all cases Specific circumstances full access Good faith application needed from all MAP partners Increase in number of cases: resources Guaranteed solution Implementation 22
MAP onder DBV Belgi (1/2) Wie? Inwoners van Belgi / inwoner van beide staten (waar MLI heeft gewijzigd) Waar indienen? De bevoegde autoriteit (CA): het MAP team Hoe? schriftelijk Lijst van informatie/documentatie die moet aangeleverd worden in FAQ en circulaire Taal Procedure tussen CA Geen tussenkomst van belastingplichtigen tenzij op uitnodiging 24
MAP onder DBV Belgi (2/2) Voor meer informatie: https://financien.belgium.be/sites/default/files/downloads/126-onderling-overleg-apa-faq-20180315.pdf https://gcloudbelgium.sharepoint.com/sites/minfin-fisconet_public/fiscal-discipline/income-taxes/legislation-and-regulations/conventions-for-the-avoidance-of-double-taxation/in-operation/conventions-and-circular-letters/27c5818d-7978-4749-a1ee-4f4816d3306d https://financien.belgium.be/sites/default/files/downloads/126-onderling-overleg-apa-faq-20180315.pdf Circulaire 2018/C/27: https://gcloudbelgium.sharepoint.com/sites/minfin- fisconet_public/fiscal-discipline/income-taxes/legislation-and- regulations/conventions-for-the-avoidance-of-double-taxation/in- operation/conventions-and-circular-letters/27c5818d-7978-4749- a1ee-4f4816d3306d FAQs: https://financien.belgium.be/sites/default/files/downloads/126- onderling-overleg-apa-faq-20180315.pdf https://gcloudbelgium.sharepoint.com/sites/minfin-fisconet_public/fiscal-discipline/income-taxes/legislation-and-regulations/conventions-for-the-avoidance-of-double-taxation/in-operation/conventions-and-circular-letters/27c5818d-7978-4749-a1ee-4f4816d3306d https://financien.belgium.be/sites/default/files/downloads/126-onderling-overleg-apa-faq-20180315.pdf https://gcloudbelgium.sharepoint.com/sites/minfin-fisconet_public/fiscal-discipline/income-taxes/legislation-and-regulations/conventions-for-the-avoidance-of-double-taxation/in-operation/conventions-and-circular-letters/27c5818d-7978-4749-a1ee-4f4816d3306d https://financien.belgium.be/sites/default/files/downloads/126-onderling-overleg-apa-faq-20180315.pdf https://gcloudbelgium.sharepoint.com/sites/minfin-fisconet_public/fiscal-discipline/income-taxes/legislation-and-regulations/conventions-for-the-avoidance-of-double-taxation/in-operation/conventions-and-circular-letters/27c5818d-7978-4749-a1ee-4f4816d3306d https://gcloudbelgium.sharepoint.com/sites/minfin-fisconet_public/fiscal-discipline/income-taxes/legislation-and-regulations/conventions-for-the-avoidance-of-double-taxation/in-operation/conventions-and-circular-letters/27c5818d-7978-4749-a1ee-4f4816d3306d 25
Resultaten peer review: verdragen Veel verdragen moeten aangepast worden Geen 3-jarige termijn in ongeveer 20% Geen art. 25(2)2 in ongeveer 50% Geen art. 25(3)2 in zowat alle verdragen B heeft MLI getekend Vele verdragen zullen worden aangepast Gekozen voor indienen in beide landen Geopteerd voor arbitrage Rest moet bilateraal gebeuren 26
Resultaten peer review: andere elementen Availability and access Prevention Resolution Implementation Roll-back voor APA s wordt gegeven Toegang tot MAP OK gemiddelde van 16 maanden Geen problemen Notificatie procedure OK TP zaken wel duidelijk langer Actieve monitoring Guidance OK Onafhankelijk maar moeilijk te vinden Goede KPIs 27
2020 statistieken Belgi https://www.oecd.org/tax/dispute/2020-map-statistics- belgium.pdf 28
ARBITRATION 29
Timeline Arbitration Convention of 23 July 1990 elimination of double taxation in connection with the adjustment of profits of associated enterprises 10 October 2017: EU directive on dispute resolution Arbitration in double taxation treaties: as from 2008 in OECD Model Convention November 2016: arbitration in MLI 30
Arbitration Convention Scope of application cases covered Article 1 This Convention shall apply where, for the purposes of taxation, profits which are included in the profits of an enterprise of a Contracting State are also included or are also likely to be included in the profits of an enterprise of another Contracting State on the grounds that the principles set out in Article 4 and applied either directly or in corresponding provisions of the law of the State concerned have not been observed. Scope includes: Attribution of profits to a PE Situations where losses are made 31
Arbitration Convention Main features Carve-outs: Serious penalties Court procedure pending (clock does not start ticking) If no agreement within 2 years on elimination of double taxation, arbitration commission If ALP has not been respected, MAP Independent decision within 6 months 32
Article 25 (5) of the OECD Model Tax Convention Where, a) under paragraph 1, a person has presented a case to the competent authority of a Contracting State on the basis that the actions of one or both of the Contracting States have resulted for that person in taxation not in accordance with the provisions of this Convention, and b) authorities are unable to reach an agreement to resolve that case pursuant to paragraph 2 within two years from presentation of the case to the competent authority of the other State, the competent the Contracting 33
Article 25 (5) of the OECD Model Tax Convention any unresolved issues arising from the case shall be submitted to arbitration if the person so requests in writing. These unresolved issues shall not, however, be submitted to arbitration if a decision on these issues has already been rendered by a court or administrative tribunal of either State. Unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision, that decision shall be binding on both Contracting States and shall be implemented notwithstanding any time limits in the domestic laws of these States. 34
Arbitration Instrument under the Multilateral Same basis as Article 25(5) Basis More detailed rules of procedure Specific rules for acceptance of the outcome and implementation All unresolved issues Scope States may limit the scope via free form reservations subject to acceptance by treaty partners Two-year period for MAP, with option to three-years Timing Specific rules to determine start date of the period Appointment of arbitrators Detailed rules Confidentiality during the arbitration procedure Type of arbitration procedure: independent opinion vs. baseball arbitration Cost sharing Direct binding effect of the arbitration procedure 35
EU Directive on dispute resolution Scope of application cases covered Article 1 This Directive lays down rules on a mechanism to resolve disputes between Member States when those disputes arise from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and, where applicable, capital. ( ) For the purposes of this Directive, the matter giving rise to such disputes is referred to as a question in dispute . Scope includes: Double tax conventions between Member States on income/capital EU Arbitration Convention Carve-outs: unilateral decision to deny access to dispute resolution process Tax fraud, wilful default and gross negligence No double taxation 36
EU Directive on dispute resolution Procedural functioning Phase I: submission 3-year filing period to either competent authority concerned Phase II: review stage 6 months for decision on acceptance complaint Phase III: MAP 2 years for reaching a MAP agreement Phase IV: arbitration 4 months for establishing an advisory commission 6 months for the commission to render an opinion Phase V: final decision and implementation 6 months for taking a final decision 2 months for taxpayers to accept the decision and renouncing domestic remedies 37
Which tool to use? What kind of dispute? Jurisdictions involved? Is the dispute controversial? Do the carve- outs play a role? Years involved? 38
Work on Pillar 1 and 2 Pillar 1 Amount A Recently public consultation on TC for Pillar 1 Tax certainty for Amount A Focus on dispute prevention Tax certainty for issues related to Amount A Mandatory binding dispute resolution Amount B Pillar 2 Implementation plan: consider merits of an MLC Currently being explored 39
NOG VRAGEN? sandra.knaepen@oecd.org 40
