19 September 2019 OECD releases 2018 mutual agreement procedure statistics On 16 September 2019, the Organization for Economic Co-operation and Development (OECD) released its annual publication on Mutual Agreement Procedure (MAP) statistics. For 2018, the report includes statistics from all OECD members and most of the members of the OECD Inclusive Framework on BEPS1 (BEPS IF) — a total of 89 jurisdictions and almost all MAP cases worldwide.2 The report provides information separately for transfer pricing cases and non-transfer-pricing cases regarding the:
In addition, the report provides for each jurisdiction the number of MAP cases it has with each of its treaty partners.3 This transparency should allow greater insight into each jurisdiction's unique MAP situation. Among the various BEPS reports the OECD released under its BEPS Action Plan was the final report on Action 14: Making Dispute Resolution Mechanisms More Effective (the Action 14 Report or the Report).4 As detailed in the Action 14 Report, improving dispute resolution mechanisms is an integral component of the work on BEPS. The measures developed under BEPS Action 14 and contained in the Report are designed to minimize the risks of uncertainty and unintended double taxation. They aim to do so by ensuring the consistent and proper application of tax treaties, including the effective and timely resolution of MAP disputes. Jurisdictions have agreed to important changes in their approach to dispute resolution, such as a minimum standard with respect to the resolution of treaty-related disputes. One element of the minimum standard requires jurisdictions to seek to resolve MAP cases within an average of 24 months. To monitor compliance with this, members of the BEPS IF have committed to report their MAP statistics under an agreed reporting framework.5 In addition, the minimum standard requires certain other behavioral commitments, which will be subject to a peer-based monitoring mechanism. Other changes in their approach to dispute resolution may require modifications to treaty MAP Articles. Given the number of countries that will need to modify their treaties, the OECD will use the multilateral instrument (MLI) that entered into force on July 1, 2018, to uniformly modify those treaties. The MLI includes a MAP article designed to improve dispute resolution. The agreed reporting framework includes tracking statistics for cases received before 1 January 2016 or of the year of joining the BEPS IF and for cases received on or after 1 January 2016 or of the year of joining the BEPS IF. The most important highlights of these 2018 MAP statistics follow. The starting inventory of all MAP cases (i.e., transfer pricing and non-transfer pricing) fell by 7.7% between 2017 and 2018, from 7,500 to 6,924 cases. The ending inventory for all cases also fell during this period, by 3.3%, from 6,831 to 6,605. The number of all cases closed fell by 1.5% between 2017 and 2018, from 2,745 to 2,704. The five jurisdictions completing the most transfer pricing cases in 2018 were Germany (227), the United States (181), France (136), Canada (102) and Italy (90). The five jurisdictions with the highest number of completed "other" (non-transfer pricing) cases in 2017 were Belgium (596), Germany (431), the Netherlands (314), Luxembourg (241) and France (226). Germany (1,198), the United States (1,007), France (972), India (841) and Italy (742) had the largest ending inventories of MAP cases in 2018. Jurisdictions with more than 40 cases in inventory generally report little variation in the sizes of their inventories year-to-year, with some exceptions. For example, France, Italy and Spain each report significant increases in their inventories. Jurisdictions that have between 5 and 40 cases in inventory generally report significant increases in their inventories. The results and trends observed in solely transfer pricing cases are generally consistent with those observed in all MAP cases. The competent authorities seem to be closing more cases than they are receiving (1148 closed vs. 930 new). Jurisdictions with more than 25 transfer pricing cases in inventory generally report little variation in the sizes of their inventories year-to-year, with some exceptions, notably India, France, Italy and Spain, which each reported significant increases in their inventories. Indeed, India has the largest inventory of transfer pricing cases (710), followed by the US (670). Jurisdictions that have between 5 and 25 cases in inventory generally report significant increases in their inventories, with the exception of Norway and Australia. According to the OECD data, 2,385 cases were started on or after 1 January 2018. Table 1 below presents the 10 reporting jurisdictions with the highest number of all MAP cases initiated in 2018:
The number of cases reported as completed in 2018 is 2,704, a slight decrease over the 2,745 cases completed in 2017. The five jurisdictions completing the most MAP cases in 2017 were Germany (658), Belgium (635), Netherlands (373), France (362) and the United Kingdom (274). According to the OECD, of the MAP cases concluded in 2018, 81% resolved the issue. Of that 81%, 57% of MAP cases closed were concluded with an agreement fully eliminating double taxation, 17% eliminated double taxation by unilateral relief of one competent authority, 4% were resolved via domestic remedy, and 2% were resolved with an agreement partially eliminating double taxation. For 1% of the MAP cases closed, parties agreed that there was no taxation not in accordance with the tax treaty. Of the 19% of cases closed that did not resolve the issue, 6% were withdrawn by taxpayers while 13% were not resolved for various reasons (i.e., no agreement by the competent authorities; objection was not justified; and any other outcome). Unlike prior years, the 2018 OECD MAP statistics do not include data on the average cycle times for all cases. Average cycle time to close MAP cases for each jurisdiction is still included in the breakdown per reporting jurisdiction. The OECD data reveals that only 28% of the jurisdictions received more than 25 new MAP cases. Of those jurisdictions, 84% are OECD member jurisdictions (mostly European jurisdictions, the United States, Canada, Japan and Korea). India, Malaysia, Qatar and Indonesia were the four non-OECD member countries that received more than 25 MAP cases. Seven jurisdictions (Belgium, France, Germany, Italy, Netherlands, the United Kingdom and the United States) had more than 250 new cases. Five jurisdictions (India, Luxembourg, Spain, Sweden and Switzerland) had between 100 and 250 cases. Four jurisdictions (Austria, Canada, Denmark and Norway) had between 50 and 100 new cases. Nine jurisdictions (Finland, Indonesia, Ireland, Japan, Korea, Malaysia, Poland, Portugal and Qatar) had between 25 and 50 cases. Interestingly, 72% of all jurisdictions (including Argentina, Australia, Brazil, China, Mexico, Russia, Singapore, South Africa and Turkey) participating in the BEPS IF received fewer than 25 new MAP cases in 2018. Access to MAP for cases in which taxation contrary to the provisions of a tax treaty occurs remains a key issue for the OECD and jurisdictions to address, particularly in an environment where many countries have expanded their capacity to audit international tax issues, including transfer pricing issues. The OECD data indicate that 6% of cases were denied access to MAP. That number likely underreports the actual number of taxpayers denied access to MAP because competent authorities are not aware of many cases in which taxpayers are prevented from applying for competent authority assistance. While interesting and helpful, the statistics provided do not necessarily indicate whether the MAP process in a particular jurisdiction is working effectively. For example, a low number of MAP cases may indicate that there is little controversy, or it may actually be an indicator of tax administration processes or dynamics that have led to cases not reaching MAP for one or more reasons. The number of new MAP cases continues to increase, albeit at a slower rate than in prior years. This is evident in the 14.9% growth rate of new MAP cases as opposed to 38.8% growth rate in 2017. The predicted tsunami of BEPS-caused MAP cases appears to be more of a wave, although it is still early in the BEPS life-cycle. However, in a worrisome development, jurisdictions with 5 to 25 transfer pricing cases in inventory generally have rapidly growing inventories. This may reflect an increase in controversy for transactions with those jurisdictions and an increased need for robust analysis and documentation. The good news is that the MAP process works, as indicated by the 81% resolution rate. The length of time to resolve a case, however, remains stubbornly long. This may change as the OECD issues MAP statistics and taxpayers and advisors stay actively engaged in the MAP process. The release of MAP statistics by the OECD provides a measure of the effects of the implementation of some elements of the Action 14 minimum standard as part of the OECD's BEPS Action plan. As noted, quantitative reporting does not necessarily indicate the degree to which the MAP in a jurisdiction is working effectively. Companies that continue to experience issues with MAP in a specific jurisdiction are advised to make these issues known directly to the OECD.
2 Argentina, Australia, Austria, Bahrain, Belgium, Botswana, Brazil, Brunei Darussalam, Bulgaria, Canada, Cayman Islands, Chile, China, Colombia, Costa Rica, Côte d'Ivoire, Croatia, Curaçao, Czech Republic, Denmark, Dominican Republic, Estonia, Finland, France, Georgia, Germany, Greece, Guernsey, (Hong Kong, China), Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Kazakhstan, Kenya, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, (Macau, China), Malaysia, Maldives, Malta, Mauritius, Mexico, Monaco, Netherlands, New Zealand, Norway, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Poland, Portugal, Qatar, Romania, Russia, Saint Kitts and Nevis, San Marino, Saudi Arabia, Senegal, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turks and Caicos Islands, United Kingdom, United States, Uruguay and Zambia. 4 See Global Tax Alert, OECD releases final report on improving the effectiveness of dispute resolution mechanisms under Action 14, dated 8 October 2015. 5 For more information on the agreed framework, see EY Global Tax Alert, OECD releases mutual agreement procedure statistics for 2016, dated 1 December 2017. Document ID: 2019-1665 | |||||||||||||||||||||||||||||||||||||||||||
