February 23, 2023
OECD publishes Manual on Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Arrangements
On 1 February 2023, the OECD published a Manual on the Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Arrangements. The MoMA is part of the tax certainty work program of the Forum on Tax Administration (FTA) and has been produced jointly by members of the FTA MAP Forum and its focus group on exploring potential for wider use of multilateral MAPs and multilateral APAs. The MoMA was approved by the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and all members of the FTA.
The MoMA is intended as a guide to multilateral MAP and APA processes from both a legal and procedural perspective. It provides tax administrations and taxpayers with information on the operation of these procedures and suggests different approaches based on the practices of jurisdictions, without imposing a set of binding rules. The MoMA also outlines the actions and cooperation expected from taxpayers to allow tax administrations to consider MAP and APA cases multilaterally.
Multilateral MAPs and APAs offer greater tax certainty to both taxpayers and tax administrations where different parts of the same transaction or arrangement involving a multinational enterprise are covered by multiple bilateral tax treaties. However, many jurisdictions have limited experience to-date in coordinating bilateral MAP and APA cases to offer multilateral certainty. The MoMA provides guidance to jurisdictions on the handling and resolving of multilateral MAP and APA cases, covering four topics:
Basis for handling multilateral MAP and APA cases
The MoMA recognizes challenges that can arise in multilateral MAP and APA cases, including the lack of consensus on situations where multilateral solutions would be appropriate and the lack of a clear agreement among jurisdictions as to the most appropriate legal basis for dealing with such cases. The MoMA includes recommendations for addressing the following issues:
Definition of a multilateral case
The MoMA proposes that a multilateral case, for both MAP and APA purposes, is a case "where two competent authorities:
provided there are tax treaties in force between all of the jurisdictions involved containing provisions based on Article 25 of the OECD Model Tax Convention."
Legal basis for request
As an APA is a voluntary process whereas access to MAP is a right granted to eligible persons under an applicable tax treaty, the MoMA recognizes that different approaches are needed:
The MoMA states that jurisdictions should clarify the legal basis that they would use for multilateral MAP cases in their published MAP guidance.
The request in multilateral cases
The MoMA sets out some general principles around requesting a multilateral case, regardless of the applicable legal approach (discussed above):
Information sharing across jurisdictions
The MoMA states that taxpayers should provide all the information contained in MAP and APA requests to all relevant CAs. Early coordination is encouraged between jurisdictions on practical measures that can be taken to consider the case multilaterally if the relevant jurisdictions follow different approaches due to their particular legal requirements.
Access to multilateral procedures and the Action 14 minimum standard
The MoMA states that jurisdictions should develop their own rules regarding which MAPA requests are accepted into the program and discussed with other CAs. Access to MAP should be granted in all eligible cases and practices should be subject to the BEPS Action 14 minimum standard on MAP. Multilateral MAP cases must be recorded as multiple bilateral cases with each relevant jurisdiction for purposes of MAP statistics reporting.
Procedural aspects to consider in multilateral cases
The MoMA recognizes that there are various procedural issues with respect to multilateral MAP and APA cases, such as the modalities of conducting such procedures (i.e., through multilateral discussions or multiple bilateral discussions), coordination between CAs to ensure efficient use of time and resources and the sharing of information with multiple jurisdictions. This section of the MoMA contains guidance on procedural aspects and indicative timing for each step of a multilateral case.
Approaching the other jurisdictions involved
The MoMA sets out the typical steps for CAs to take in approaching other jurisdictions and recommended timing for these steps, including notifying other CAs of the request (and for APAs, confirming their willingness and ability to participate) and determining if the request is admissible.
Possible approaches to discussions in the multilateral stage
The MoMA puts forward two suggested approaches:
Coordination of procedural matters
Initial discussion between all CAs is recommended, covering for example whether to appoint a coordinating CA (as well as which CA may be best suited for this and what such CA's main responsibilities would be), agreement on whether to take a Multilateral or Bilateral Approach, language and logistics. For MAPAs, project plans may also be helpful, as well as coordination in the initial information gathering stage (e.g., joint information requests, joint functional interviews, etc.) If appointed, a coordinating CA would serve as the main point of contact for the taxpayer and its responsibilities could include coordinating the following: discussions between the CAs and with the taxpayer, information requests, ensuring that all information is made available to each of the CAs involved, issuance of position papers and drafting of final agreements.
Discussions in a multilateral case
The MoMA addresses several key aspects of multilateral discussions:
Interaction with available domestic remedies or procedures
Implementation of the agreements
The MoMA indicates that CAs should implement MAP agreements regardless of domestic time limits. CAs should aim for swift implementation of multilateral MAP and APA agreements. The MoMA recognizes that taxpayers may want to roll forward multilateral MAP agreements to future years.
Arbitration where there is no MAP agreement
The MoMA notes that taxpayers can request CAs to start arbitration procedures if a MAP agreement is not reached, generally within a specified timeframe. Key considerations for multilateral cases are the legal basis, the application of arbitration provisions in the relevant treaties, the potential to consider flexing typical arbitration time limits (given that multilateral MAP cases are expected to take longer than other MAP cases). If arbitration is pursued, the CAs would need to agree on the design of a multilateral or coordinated bilateral arbitration process.
The rights, obligations and role of the taxpayer in multilateral cases
The MoMA highlights the importance of transparency on both sides: taxpayers engaging with the CAs in a principled, fair, objective and transparent manner (e.g., providing information to all CAs involved) and CAs providing taxpayers with regular progress updates and tentative timeframes.
Examples of multilateral cases
The MoMA includes several simplified examples of transactions that would generally benefit from multilateral solutions. These include cases involving transfer pricing, profit attribution to permanent establishments, hybrid entities and dual or multiple-residence issues.
Ideal timeline for a typical multilateral case
The MoMA includes indicative timelines for each step of a multilateral MAP and a MAPA case in line with the guidance provided in the MoMA. These timelines cover key stages, including receipt of a MAP or APA request (the starting point), notifying the other relevant CAs, decision to accept a case, exchange and conclusion of position papers, and reaching and implementation of the mutual agreement.
The guidance contained in the MoMA is a positive step forward in providing a framework for coordinating and streamlining multilateral cases without imposing a set of binding rules, which should help to increase the efficiency and efficacy of dispute prevention and resolution.
The MoMA allows tax administrations to explore whether implementation of the guidance and procedures is appropriate and provides additional clarity considering the circumstances of their own MAP and APA programs. Given the importance of certainty and avoiding double taxation, companies should monitor the adoption of the MoMA guidance in relevant jurisdictions where such rules are not already in place. Adoption of the MoMA guidance will help foster greater collaboration between tax administrations and taxpayers and create more efficient tools for tax certainty, which is more important than ever in light of the ongoing work on the BEPS 2.0 project.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP (Netherlands)
Ernst & Young Solutions LLP (Singapore)
Ernst & Young LLP (United Kingdom)
Ernst & Young LLP (United States)
1 OECD MTC Article 25(3): "The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention."
2 This typically involves the jurisdiction that has made or proposes to make a primary adjustment or action resulting in taxation not in accordance with the treaty.
3 OECD MTC Article 25(1): "Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of either Contracting State. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention."
4 OECD MTC Article 25(2): "The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States."
5 See EY Global Tax Alert, OECD publishes Manual on Bilateral APAs, dated 5 October 2022.