The OECD has released analyses of individual country efforts to improve dispute resolution mechanisms. Belgium, Canada, the Netherlands, Switzerland, the United Kingdom and the United States are the subject of this first tranche of stage 1 peer review reports that evaluate how countries are implementing the new minimum standards agreed in the OECD/G20 BEPS Project.
Stage 1 peer review reports focus specifically on the implementation of BEPS Action 14, the objective of which is to improve the mutual agreement procedure (MAP) by establishing a minimum standard that ensures tax treaty-related disputes are resolved in a timely, effective and efficient manner.
The best practices that the selected countries were reviewed against are as follows:
Part A: Preventing Disputes
- Jurisdictions should implement bilateral APA programs.
- Jurisdictions should have appropriate procedures in place to publish agreements reached by competent authorities on difficulties or doubts arising as to the interpretation or application of their tax treaties in appropriate cases.
- Jurisdictions' published MAP guidance should provide guidance on APAs.
- Jurisdictions should develop the "global awareness" of the audit/examination functions involved in international matters through the delivery of the Forum on Tax Administration's "Global Awareness Training Module" to appropriate personnel.
Part B: Availability and access to MAP
- Jurisdictions should implement appropriate administrative measures to facilitate recourse to the MAP to resolve treaty-related disputes, recognizing the general principle that the choice of remedies should remain with the taxpayer.
- Jurisdictions' published MAP guidance should provide that taxpayers will be allowed access to the MAP so that the competent authorities may resolve through consultation the double taxation that can arise in the case of bona fide taxpayer-initiated foreign adjustments.
- Jurisdictions' published MAP guidance should provide guidance on multilateral MAPs.
- Jurisdictions should take appropriate measures to provide for a suspension of collections procedures during the period a MAP case is pending. Such a suspension of collections should be available, at a minimum, under the same conditions as apply to a person pursuing a domestic administrative or judicial remedy.
Part C: Resolution of MAP cases
- Jurisdictions should implement appropriate procedures to permit, in certain cases and after an initial tax assessment, requests made by taxpayer which are within the time period provided for in the tax treaty for the multi-year resolution through the MAP of recurring issues with respect to filed tax years, where the relevant facts and circumstances are the same and subject to the verification of such facts and circumstances on audit.
- Jurisdictions should publish an explanation of the relationship between the MAP and domestic law administrative and judicial remedies.
- Jurisdictions' published MAP guidance should provide guidance on the consideration of interest and penalties in the mutual agreement procedure.
- Jurisdictions should include paragraph 2 of Article 9 of the OECD Model Tax Convention in their tax treaties.
The reports suggest that the six assessed jurisdictions are performing well in the following areas:
- provision for rollback of bilateral advance pricing agreements (APAs), with a view to preventing potential future disputes
- availability and access to MAP in situations that are required by the minimum standard
- adequate resourcing of the competent authority and a pragmatic and principled approach taken for the resolution of MAP cases and
- timely implementation of MAP agreements.
The main areas where improvements are required were identified as:
- resolution of MAP cases within the pursued average of 24 months, particularly when the cases concern transfer pricing and
- improvements on the clarity and accessibility of MAP guidance for some jurisdictions.
In addition, each jurisdiction was given recommendations in order to align their tax treaty MAP provisions with the Action 14 minimum standard. For a number of those treaties, the adoption of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the MLI) will have already achieved this objective, with the only jurisdiction not signatory to the MLI that was subject of the peer review being the United States.
The OECD will continue to publish stage 1 peer review reports in accordance with the Action 14 peer review assessment schedule. Austria, France, Germany, Italy, Liechtenstein, Luxembourg and Sweden will be the subject of the second tranche of peer review reports. Stage 2 peer monitoring will be launched one year from the adoption of the Stage 1 Peer Review Report by the Inclusive Framework.
The increased volume of literature on APAs and MAP published by numerous tax administrations in recent months indicates that countries are taking the commitment to meet OECD minimum standards seriously. Over the past year alone, several countries have released new guidance, either on the application process for bilateral APAs, or the MAP negotiation process in their respective jurisdictions, including Canada, Costa Rica, Greece, India, Ireland, Japan, Luxembourg, Malta, Morocco, Poland, Singapore, the United Kingdom and the United States. All these efforts are expected to make APAs and MAP viable mechanisms to both prevent potential future disputes and to resolve those that have arisen with either a taxpayer or tax treaty partners.
Furthermore, according to the Terms of Reference to Monitor and Review the Implementing of the BEPS Action 14 Minimum Standard, published in October 2016, an important function of MAP is ability to be used to resolve treaty interpretation difficulties:
"The MAP, which is independent from the ordinary legal remedies available under domestic law, allows the competent authorities of the Contracting Parties to resolve differences or difficulties regarding the interpretation or application of the Convention on a mutually-agreed basis. This mechanism seeks to ensure the proper application and interpretation of tax treaties so that taxpayers entitled to the benefits of the treaty are not subject to taxation by either of the Contracting Parties which is not in accordance with the terms of the treaty…"
With unilateral rulings coming under scrutiny, and subject to uncertainty around automatic exchanges, MAP should be actively considered as a viable alternative for "bilateral rulings," a practice that has so far been used more in transfer pricing but it clearly has potential to expand into other areas in the post BEPS environment.
With Action 14 being taken seriously by a growing number of tax administrations, and tax disputes likely to increase in the coming years after the full implementation of BEPS, taxpayers should take MAP into account as a mechanism that can operate in conjunction with domestic dispute resolution procedures, and do so early on in the dispute resolution process. The 24-month resolution timeframe set by the OECD as the minimum standard is putting pressure on countries to resolve disputes in a timely manner and is likely to make MAP an effective mechanism, perhaps even more quickly than domestic processes in many jurisdictions.