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New guidance issued on requesting competent authority assistance under tax treaties


Rev Proc 2015-40, 2015-35 IRB

In a Revenue Procedure, IRS has provided guidance on the process of requesting and obtaining assistance under U.S. tax treaties from the U.S. competent authority, acting through the Advance Pricing and Mutual Agreement (APMA) Program and the Treaty Assistance and Interpretation Team (TAIT) of the Deputy Commissioner (International), Large Business & International Division of IRS.

Rev Proc 2015-40 is being issued concurrently with guidance on advance pricing agreements, see ¶ 21.

Background on competent authority requests. The U.S. competent authority assists taxpayers on matters covered in the mutual agreement procedure provisions of tax treaties. A tax treaty generally permits taxpayers to request competent authority assistance when they believe that actions of the U.S., the treaty country, or both, result or will result in taxation contrary to the treaty.

A proposed version of Rev Proc 2015-40 was previously released for public comment in Notice 2013-78, 2013-50 IRB 633.

New guidance. Rev Proc 2015-40, Sec. 3, provides the general procedures and requirements for filing competent authority requests. The guidance also addresses pre-filing procedures. These procedures and requirements generally apply to all types of competent authority requests (unless noted otherwise). Detailed instructions on preparing competent authority requests specific to APMA or TAIT are set out in Rev Proc 2015-40’s Appendix.

The U.S. competent authority will provide assistance only after the request is complete, either as initially filed or as supplemented. For a discretionary limitation on benefits (LOB) request, the taxpayer also must pay the correct user fee after the U.S. competent authority has accepted the request.

Taxpayers should note that some U.S. tax treaties contain specific timing requirements for competent authority requests (e.g., requiring taxpayers to submit a treaty notification within a specified time frame). Any specific requirement set out in the applicable U.S. tax treaty takes precedence over any conflicting provision in Rev Proc 2015-40. Taxpayers also should be aware that making certain agreements with IRS or a foreign tax authority may preclude or limit access to the competent authority process.

Further, taxpayers are advised to take such actions as are necessary to preserve whatever rights they may have available under domestic law in either the U.S. or the treaty country if the U.S. competent authority ultimately denies competent authority assistance or a competent authority resolution is not reached.

The principal differences between the final Revenue Procedure (Rev Proc 2015-40) and the proposed version, Notice 2013-78, are that Rev Proc 2015-40:

…limits the scope of requests to which mandatory pre-filing procedures apply to requests involving taxpayer-initiated positions;
…doesn’t require taxpayers to expand the scope of a competent authority request to include interrelated issues as a condition of receiving competent authority assistance;
…clarifies that the U.S. competent authority may consult with taxpayers with respect to certain additional issues that may arise in connection with competent authority requests, such as issues relevant to the determination of foreign tax credits and repatriation payments;
…provides additional guidance on requesting discretionary determinations under the LOB articles of U.S. tax treaties, including time frames for taxpayers to provide notification of material changes in fact or law and the introduction of a triennial statement procedure to maintain a favorable grant of discretionary benefits;
…provides that the U.S. competent authority will not condition assistance on the taxpayer’s notification of the U.S. competent authority, or on obtaining its concurrence, with respect to signing a standard Form 870 (Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment) with IRS Examination. Similarly, a taxpayer will not be required to obtain the U.S. competent authority’s agreement prior to entering into a closing agreement or similar agreement with IRS Examination, but in these cases the assistance provided by the U.S. competent authority will be limited to seeking correlative relief from the foreign competent authority, thus potentially not eliminating double taxation;
…provides additional information about the process followed by the U.S. competent authority in conducting its review under the simultaneous appeals procedure;
…clarifies and refines the bases on which the U.S. competent authority may decline to accept a competent authority request or may cease providing assistance, consistent with U.S. tax treaty policy that taxpayers should have broad access to the U.S. competent authority to resolve instances of taxation not in accordance with the applicable U.S. tax treaty;
…increases the user fee for requests for discretionary LOB relief from $27,500 to $37,000 in two phases: (1) user fee will increase to $32,500 for requests filed on or after Oct. 30, 2015 and prior to Sept. 30, 2016, and (2) the fee will further increase to $37,000 for requests filed on or after Sept. 30, 2016; and
…substantially restructures the proposed guidance in Notice 2013-78 to improve clarity, readability, and organization.

Rev Proc 2015-40 updates and supersedes Rev Proc 2006-54, 2006-2 CB 1035. Rev Proc 2003-40, 2003-1 CB 1044, is modified. Rev Rul 92-75, 1999-2 CB 197, is clarified. Rev Proc 2015-41, 2015-35 IRB, is amplified. References in Rev Proc 2015-40 to Rev Proc 99-32, 1999-2 CB 296 , will be treated as references to the corresponding provisions of Rev Proc 65-17, 1965-1 CB 833, as modified, amplified, and clarified from time to time, for tax years beginning before Aug. 24, ’99.

Effective date. Rev Proc 2015-40 is generally effective for competent authority requests filed on or after Oct. 30, 2015; however, the triennial statement requirement set out in Rev Proc 2015-40, Sec. 3.06(2)(h), is effective for discretionary LOB determinations issued on or after Aug. 31, 2015.

References: For competent authority relief, see FTC 2d/FIN ¶  O-15102  ; United States Tax Reporter ¶  8944  ; TG ¶  30951  ..

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