Tax News Update    Email this document    Print this document  

March 1, 2021

OECD releases Bahrain Stage 1 peer review report on implementation of Action 14 minimum standard

Executive summary

On 16 February 2021, the Organisation for Economic Co-operation and Development (OECD) released the 10th batch of peer review reports relating to the implementation of the Base Erosion and Profit Shifting (BEPS) minimum standard under Action 14 on improving tax dispute resolution mechanisms.1 Bahrain was among the assessed jurisdictions in the 10th batch.2

Overall the report concludes that Bahrain meets most of the elements of the Action 14 minimum standard. In the next stage of the peer review process, Bahrain's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored.

Detailed discussion


In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14 on Making Dispute Resolution Mechanisms More Effective.3 The Terms of Reference translated the Action 14 minimum standard into 21 elements and the best practices into 12 items. The Assessment Methodology provided procedures for undertaking a peer review and monitoring in two stages. In Stage 1, a review is conducted of how a member of the Inclusive Framework (IF) on BEPS implements the minimum standard based on its legal framework for Mutual Agreement Procedure (MAP) and how it applies the framework in practice. In Stage 2, a review is conducted of the measures the member of the IF on BEPS takes to address any shortcomings identified in Stage 1 of the peer review.

Both of these stages are desk-based and are coordinated by the Secretariat of the Forum on Tax Administration's (FTA) MAP Forum.4 In summary, Stage 1 consist of three steps or phases:

  1. Obtaining inputs for the Stage 1 peer review
  2. Drafting and approval of a Stage 1 peer review report
  3. Publication of Stage 1 peer review reports

Input is provided through questionnaires completed by the assessed jurisdiction, peers (i.e., other members of the FTA MAP Forum) and taxpayers. Once the input has been gathered, the Secretariat prepares a draft Stage 1 peer review report of the assessed jurisdiction and sends it to the assessed jurisdiction for its written comments on the draft report. When a peer review report is finalized, it is sent for approval of the FTA MAP Forum and later to the OECD Committee on Fiscal Affairs' to adopt the report for publication.

Minimum standard peer review reports

The report is divided into four parts, namely:

  1. Preventing disputes
  2. Availability and access to MAP
  3. Resolution of MAP cases
  4. Implementation of MAP agreements

Each part addresses a different component of the minimum standard.

Bahrain's report includes twenty-two recommendations relating to the minimum standard. In general, the performance of Bahrain with regard to MAP has proven to be satisfactory in its respective report. Overall, Bahrain meets most of the elements of the Action 14 minimum standard.

Preventing disputes

Jurisdictions should ensure that their tax treaties contain a provision, to resolve by mutual agreement any "difficulties or doubts" arising on the interpretation or application of tax treaties. These provisions should apply not just in specific taxpayer instances but also in cases where such "difficulties or doubts" arise generally among tax authorities. Inclusion of such a language in double tax treaties would authorize competent authorities to solve these cases without submission of MAP requests and prevent disputes in the future from arising.

While a majority of Bahrain's tax treaties contain analogous provisions, the language of the other treaties deviates from the above. As per the peer review report, Bahrain has reported that it intends to negotiate on updating the tax treaties to ensure consistency in language with Bahrain's other tax treaties. Additionally, Bahrain has also reported that for all future tax treaties it would endeavor to include the above language.

There were no discussions around Advance Pricing Arrangements (APAs) and any roll-back mechanism in the absence of transfer pricing and APA programs in Bahrain.

No peer input was provided as there were no specific cases in Bahrain.

Availability and access to MAP

The availability of and access to MAP assistance is key to resolving tax disputes. MAP assistance should be made available: (i) whether or not domestic law provides remedies; (ii) where the tax treaty doesn't offer the choice to approach either of the competent authorities; (iii) in transfer pricing, application of anti-abuse and audit settlement cases; and (iv) where the taxpayer has provided the de-minimis documentation based on existing MAP rules. Additionally, tax treaties should allow competent authorities to consult each other on the elimination of double taxation. Jurisdictions must also publish comprehensive MAP guidance on access to MAP on a shared public platform.

Bahrain has stated that irrespective of its domestic remedies, it would provide access to MAP requests by taxpayers. Also, where Bahrain's tax treaties do not contain a provision that allows taxpayers to submit a MAP within a period of at least three years (from the notification of the action resulting in taxation), it will strive to update its treaties via bilateral negotiations. All Bahrain's future tax treaties will include these provisions.

Bahrain has also put in place a bilateral notification process to notify the other competent authority about MAP requests when its own competent authority views the MAP request as unjustified.

Bahrain has stated that it will always provide access to MAP requests in transfer pricing (TP) cases and will make the corresponding TP adjustments (as and when applicable) when adjustments are made by a tax treaty jurisdiction regardless of Bahrain's treaty position. Most of Bahrain's existing treaties have above similar provisions, which will continue in all its future tax treaties as well.

Bahrain's tax treaties as well as its domestic law do not allow competent authorities to restrict access to MAP where any anti-abuse provisions are invoked. This position is recommended to be followed whenever such conflict arises.

As Bahrain does not have any domestic law on audit settlements between taxpayers and the tax administration, access to MAP requests on account of audit settlements was not discussed.

Bahrain has also reported that its own draft MAP guidance (published only later outside the peer review period) lists all information and documentation requirements that taxpayers have to provide following which the taxpayer has access to MAP in all cases.

Most of Bahrain's tax treaties allow competent authorities to consult together on the elimination of double tax. Bahrain is currently working on a plan to amend the rest of its treaties (including future treaties) to ensure mutual consultation of competent authorities for elimination of double tax. The peer review report recommends that Bahrain publish its MAP guidance with minimum documentation/information requirements as well as its MAP profile accessible to the taxpayers on a shared public platform.

Resolution of MAP cases

Jurisdictions should ensure that their tax treaties contain a provision that enables the competent authority to resolve the MAP case, by mutual agreement with the competent authority of the other state. The time frame for resolving the MAP cases should be an average of 24 months between both competent authorities, in total. This would mean that adequate resources are to be provided to the MAP function, and the staff in charge of MAP processes have adequate authority to resolve MAP cases transparently (independent of the approval of tax administration personnel who made the adjustments or policy considerations). Further jurisdictions should not use performance indicators for their competent authority staff based on the amount of audit adjustments or tax revenue.

Almost all of Bahrain's tax treaties require its competent authority to endeavor to resolve, by mutual agreement with the competent authority of the other treaty country all MAP cases, in cases of a dispute. While all Bahrain's future tax treaties will continue to employ similar language, Bahrain will request the inclusion of the above provision in the existing non-conforming treaty via bilateral negotiations.

The peer report indicates that Bahrain did not have any MAP cases since 1 January 2018 but they would monitor any new MAP request for the time needed to resolve the MAP cases (within the stipulated 24 month time frame).

Bahrain has also indicated that it has six people who will deal partly with MAP and partly with other international tax matters and thus it was unnecessary to monitor the need for more staff in the absence of MAP inventory.

Further, Bahrain has clearly indicated that its MAP staff will have the authority to resolve the MAP cases in accordance with the applicable tax treaty and are not dependent on the approval/direction of the tax administration directly involved in the tax adjustment which resulted in MAP.

Bahrain has also clarified that its MAP staff personnel are not evaluated on the outcome of MAP cases (the amount of audit adjustments or tax revenue) and that with any increase in the number of MAP cases, it will consider the evaluation of its MAP staff on the basis of approved OECD performance indicators. Additionally, Bahrain has also confirmed that it does not have any domestic law provisions that prevent arbitration proceedings found in some of its tax treaties.

Implementation of MAP agreements

Jurisdictions should implement any agreement reached in MAP discussions, including by making appropriate adjustments to the tax assessed in TP cases, on a timely basis. Such implementation should be irrespective of time limits in domestic law or should be based on time limits found in tax treaties. Bahrain has clarified that its tax treaties would override any domestic law limitations on the implementation of MAP agreements. Bahrain has included in its MAP guidance, the process of MAP implementation including specific timelines (90 days after the exchange of closing letters on acceptance of MAP agreement by the taxpayer). These timelines would be monitored by its competent authority. Where Bahrain's tax treaties do not have a provision requiring a mutual agreement reached through MAP to be implemented notwithstanding time limits in domestic law, Bahrain would endeavor to update them via bilateral negotiations. All future treaties to be entered into by Bahrain would have these provisions.

Next steps

Bahrain is already working to address deficiencies identified in its peer review and will now move on to Stage 2 of the process, where Bahrain's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. Under the peer review program methodology, Bahrain shall submit an update report to the Forum on Tax Administration's MAP Forum within one year of the OECD Committee on Fiscal Affairs' adoption of the Stage 1 peer review report.


In a post-BEPS world, where multinational enterprises (MNEs) face tremendous pressures and scrutiny from tax authorities, the release of the Bahrain peer review report represents the continued recognition and importance of the need to achieve tax certainty related to cross-border transactions for MNEs. While increased scrutiny is expected to significantly increase the risk of double taxation, the fact that tax authorities may be subject to review by their peers should be seen by MNEs as a positive step to best ensure access to an effective and timely mutual agreement process.

Furthermore, the peer review for Bahrain provides insights to taxpayers on the availability and efficacy of MAP. With additional countries continuing to be reviewed, the OECD has made it known that taxpayer input continues to be welcomed on an ongoing basis.

With stakeholder feedback in mind, businesses are encouraged to share their views with the OECD on the peer review for Bahrain and any other jurisdictions, and to perhaps comment on whether the next iteration of the OECD's assessment of tax administration's MAP performance warrants greater feedback from taxpayers as the primary source. Feedback from the international tax community is the logical next step after peer review, which may help to further validate the current favorable result.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Middle East, Manama


1 See EY Global Tax Alert, OECD releases tenth batch of peer review reports on Action 14, dated 17 February 2020.

2 See link to Bahrain's minimum standard peer review report:

3 See EY Global Tax Alert, OECD releases BEPS Action 14 on More Effective Dispute Resolution Mechanisms, Peer Review, dated 31 October 2016.