On June 4, 2019, the OECD, in partnership with the U.S. Council for International Business (USCIB), continued its annual international tax conference in Washington, DC. This article covers the one of the morning panels that addressed improving tax certainty through use of mutual agreement procedure (MAP) under income tax treaties.
Editor’s Note: A member of the BEPS Global Currents team attended the 2019 OECD conference.
The following stakeholders spoke during the MAP panel session:
- Grace Perez-Navarro, Deputy Director, OECD Centre for Tax Policy and Administration
- Harry Roodbeen, Director, International Tax and Consumer Tax, Ministry of Finance, The Netherlands
- John Hughes, Chair, OECD FTA MAP Forum; Director, APMA, Large Business and International (LB&I) Division, IRS
- Rocco Femia, Member, Miller & Chevalier, Washington, DC
- Elizabeth J. Stevens, Associate, Caplin & Drysdale, Chartered, Washington, DC
John Hughes started the panel discussion by saying that the OECD BEPS Action 14 country MAP peer reviews are on schedule, but it is not a rubber-stamp process. Peer review recommendations are discussed and debated by affected countries. He added that the first set of stage two MAP peer review reports will come out in coming months, which includes the U.S. The stage two reports will focus on how countries are addressing recommendations from the stage one MAP peer reviews.
While tax authority MAP processing time may vary greatly by country, it’s important to focus on the differences between transfer pricing and non-transfer pricing MAP cases, and the reasons for those differences, according to Mr. Hughes. For example, the U.K. and the Netherlands have a lot of MAP experience, so their tax authorities’ processing time is generally faster, compared to other countries. The IRS resolves most MAP cases to avoid double taxation for taxpayers. He still sees the same types of MAP cases being filed in the U.S. that involve relatively small tax amounts, but that end up taking up significant IRS time to resolve.
Harry Roodbeen said that the Netherlands closed its MAP cases faster in 2018, to reduce its MAP inventory for cases that it sees as not likely to result in resolution. He acknowledged that is not a good sign for taxpayers, but that is what the Netherlands has done to reduce its MAP inventory.
Countries have become more aware of importance of using MAP, as a result of BEPS Action 14 and the resulting country peer reviews, added Mr. Roodbeen. This has caused more dialogue among competent authorities, and made them aware of the necessity of meeting more often. He said taxpayers can improve the MAP process by being fully transparent to ensure their facts are fully developed, which creates trust with the competent authorities.
Mr. Roodbeen also said that advance pricing agreements (APAs) are likely to become more important, if Pillar 1 of OECD digital tax proposals is implemented.
Mr. Hughes then said that the OECD Action 14 peer review process has improved taxpayer access to information on how to file MAP requests for many countries. BEPS Action 14 implementation has made structural improvements to MAP process, such as how the underlying information is presented to (and from) tax authorities. MAP remains the most effective means of addressing double taxation, in his opinion.
Competent authorities have to withdraw portions of MAP requests at times, which should be handled by examination teams, according to Mr. Hughes.
The IRS has increased its MAP staff, along with some other countries, said Mr. Hughes. Several workshops held recently in South Africa and Turkey have allowed competent authorities to share information on their MAP experiences, with one coming up in Thailand. He has also witnessed an increase in dialogue with U.S. treaty partners to work through the APA and MAP process, including with countries that did not previously have such dialogue with the IRS.
Mr. Hughes added that a substantial amount of time is spent by OECD Forum on Tax Administration (FTA) members on gathering and reporting their MAP statistics.
Grace Perez-Navarro said that access to MAP has improved greatly in India and Brazil, as a result of BEPS Action 14, which previously were limited to certain cases under Article 9(2) of their income tax treaties dealing with corresponding adjustments. However, Mr. Hughes said that access to MAP remains an issue in several countries.
The OECD MAP Forum has been tasked with doing more work in recent years than was called for by BEPS Action 14, including making improvements to APA processes, added Mr. Hughes. The Forum is also exploring use of common benchmarks in handling MAP and APA cases, including with treaty partners (e.g., India and Mexico for the IRS).
Rocco Femia feels that the MAP process is working, but with a “qualified yes,” from his experience. He has seen an uptick in MAP cases being resolved in their early phases, including by competent authorities before an MAP request is made by a taxpayer.
It would be helpful to see more detailed country MAP statistics said Mr. Femia, such as the impact on MAP cases between Canada and U.S. that do not involve application of mandatory binding arbitration.
Mr. Femia also said that people should be mindful that the OECD FTA has only been around for about 20 years, so this period has been the first time that countries have worked together to address MAP processes. He has been involved in MAP cases where the taxpayer is a bystander in the process between the competent authorities.
Elizabeth J. Stevens has not seen a shift in processing of MAP cases in her work. Making the MAP process faster would improve it, in her opinion. The MAP process is a balance involving giving up tax sovereignty to improve cross-border investment.
In conclusion, Ms. Stevens said that any issues with the MAP process flow from country resources devoted to this tax function.
Click here for more information on our BEPS research and technology solutions to address your immediate and ongoing needs.