Double taxation – mutual agreement procedure

The double taxation mutual agreement procedure (MAP) process should ensure that taxpayers can ask the relevant tax authorities to resolve situations where the taxpayer believes that they are not being taxed in accordance with the terms of the relevant double tax treaty.

The UK has just published an updated version of its Statement of Practice SP 1 (2018) Mutual Agreement Procedure (MAP) which supersedes the previous, 2011, version and explains how the MAP works in practice.

The latest version is shorter because much of the detail from the 2011 version is now contained in the International Tax Manual to which the latest Statement of Practice (SP) provides the relevant links. The latest SP also takes into account all the work undertaken by OECD in this area which is discussed below.

The related SP dealing with advance pricing agreements was first published in 2010 and then updated in 2016 and can be read by clicking here. APA are a means of agreeing, in advance, how transfer pricing issues are going to be dealt with.

A key element of the OED Base Erosion and Profit Shifting (BEPS) Action Plan was Action 14 Making dispute resolution mechanisms more effective, see the final report published in late 2015 by clicking here.

The aim of Action 14 was to

“develop solutions to address obstacles that prevent countries from [re]solving treaty-related disputes under MAP, including the absence of arbitration provisions in most treaties and the fact that access to MAP and arbitration may be denied in certain cases.”

This was one of four Actions where there are now minimum standards and a peer review process is in place to make sure that all the countries that have signed up to BEPS implement the agreed minimum standards.

In February 2018 there are 112 countries signed up as members of the Inclusive Framework, committed to putting in place the relevant minimum standards.

There are four minimum standards for the Double Taxation dispute resolution mechanisms which are:  

  • Preventing disputes;
  • Availability and access to MAP;
  • Resolution of MAP cases; and
  • Implementation of MAP agreements.

Each of the four minimum standards is then supplemented by best practices.

OECD published a Peer Review document in October 2016 which sets out the terms of reference of the OECD work to monitor and review how individual countries are  implementing the Dispute Resolution standards and best practices. Stage 1 evaluates the legal framework and the second stage will see how the shortcomings identified in the first stage are being addressed. Strictly speaking the best practices are not subject to mandatory review but not the best practices.

The UK current legal framework has been reviewed by OECD and the report was published in late 2017 minimum standards : the UK also arranged for its best practices  to be reviewed.

The minimum standards are part of the official peer review process so it seems a bit odd to us that it is only the best practices report that is freely available to download on the OECD website: the minimum standards report must be purchased, or read online.

The UK profile re the dispute resolution situation and work is available by clicking here.

The statistics about individual cases and how long they take to resolve have been collated and published by OECD for the past 10 years and you can access the most recent information, which relates to 2016, on the OECD website. The statistics for the UK are available by clicking here.