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Executive summary

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.

Detailed discussion

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:

• The basis for handling multilateral MAP and APA cases
• Procedural aspects to consider in multilateral cases
• Examples of multilateral cases
• The ideal timeline for a typical multilateral case

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:

• cannot fully resolve taxation not in accordance with a treaty without resolving taxation not in accordance with other treaties involving third jurisdictions or address double or multiple taxation arising or that may arise owing to the taxation on income or on capital in one or more third jurisdictions; and
• in such a case, endeavor to find agreement on the case by mutual agreement with the competent authority(ies) of the third jurisdiction(s),

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:

• Multilateral APAs (MAPAs) — Many jurisdictions rely on the equivalent of Article 25(3) (first sentence)¹ of the OECD Model Tax Convention (MTC) as a legal basis for discussing and entering into a MAPA. Some jurisdictions require specific rules under domestic law, in addition to the treaty provision, to allow them to enter MAPAs.
• Multilateral MAPs — Jurisdictions typically derive legal basis under one of two approaches:
• Article 25(3) Approach — Some jurisdictions allow for a single MAP request from a taxpayer under the equivalent of Article 25(1) of the OECD MTC of one treaty (primary MAP request²) and then use the equivalent of Article 25(3) of the OECD MTC under each other relevant treaty to reach out to the other Competent Authorities (CAs) to coordinate the multilateral MAP through either multilateral or bilateral discussions.
• Article 25(1) Approach — Other jurisdictions consider that MAP cases must be dealt with under the equivalent of Articles 25(1)³ and (2)⁴ of the OECD MTC. Jurisdictions may require MAP requests to be filed by taxpayers under each applicable treaty or may allow the taxpayer to file a single MAP request identifying all the relevant jurisdictions to be involved in the multilateral MAP case. The Article 25(1) Approach requires consideration of time limits for filing MAP requests and would require an action that has resulted or will result in taxation not in accordance with the treaty. The MoMA indicates that a potential advantage, compared to the Article 25(3) Approach, is that this approach generally allows for implementation of a MAP agreement notwithstanding domestic time limits (if allowed by the treaty).

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):

• All eligible persons under applicable tax treaties should be entitled to make multilateral MAP and APA requests, and jurisdictions should remain as open and as flexible as possible to receive such MAP requests and to handle and resolve them.
• In general, all multilateral MAP and APA requests should follow the guidance set by the jurisdictions receiving the request and should ideally follow best practices as noted in the Manual on Effective Mutual Agreement Procedures and the Bilateral APA Manual.⁵
• Taxpayers should identify multilateral cases in their request and the CA receiving the request and the CAs in the other relevant jurisdictions must agree on this. If a taxpayer fails to identify a case as multilateral, the CAs could identify this themselves for MAPs and could encourage the taxpayer to consider requesting a multilateral approach (i.e., a bilateral case could be converted into a multilateral case where appropriate). This may require flexibility and agreement between CAs on the relevant MAP time limit (i.e., interpretation of "first notification" of the action leading to a MAP request).
• If one or more of the CAs is not able to resolve the case as a multilateral case, the remaining CAs should proceed and endeavor to resolve the double or multiple taxation.
• Regarding MAPAs, early engagement and discussion with all relevant CAs is encouraged, after which taxpayers are expected to file MAPA requests simultaneously with all such CAs. Where a taxpayer wishes to expand an already submitted unilateral or bilateral request into a multilateral request, it could either submit additional APA requests to each additional CA or withdraw the existing request and submit a new multilateral request.

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:

• Multilateral Approach — This involves multilateral discussions with all CAs involved at the table at the same time, with the view to reaching a multilateral agreement that can be implemented in each jurisdiction. This is the preferred approach as the likelihood of timely resolution may be higher due to all CAs fully participating in the proceedings. The MoMA notes that there may be challenges in reaching material agreements due to the number of CAs involved.
• Bilateral Approach — This involves bilateral discussions among CAs under each relevant treaty with the aim of reaching multiple bilateral agreements that are coordinated in such a way that double or multiple taxation is avoided for the taxpayers involved in the connected transactions. The CAs in each bilateral discussion may allow other CAs that are part of the multilateral case and affected by the transactions to attend these meetings as observers and to be given access to all documents shared among the Cas (subject to the joint agreement of all Cas involved). The MoMA notes that this approach may involve insufficient coordination or communication leading to information sharing issues, duplication of time and effort and lack of engagement by all parties involved, resulting in divergent agreements that do not fully resolve double or multiple taxation.

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:

• Position papers — The exchange of position papers between the CAs is important to support reasoned and principled positions. For multilateral cases, coordination is key, and copies of all position papers should be provided to all relevant CAs prior to discussions. The CAs should aim to provide a holistic analysis of the case, considering all transactions and relevant jurisdictions in their position papers and responses to avoid a duplication of analyses at a later stage.
• Conduct of discussions — CAs should agree on the mode of discussions, which will depend on the nature and complexity of the case. It may be useful for all CAs to arrive at an agreement on the facts prior to agreement on the application of the treaty or application of the method, comparability analysis and pricing in transfer pricing cases. All meetings should have set agendas and meeting minutes should be shared with all CAs.
• Conclusion of an agreement — There may only be one agreement on which all CAs must agree or multiple bilateral agreements. A coordinating CA may be helpful to ensure coordination of drafting, revisions and establishing the agreement terms. Taxpayers should be promptly notified of tentative agreements and if accepted closing letters should be exchanged to formally conclude the mutual agreement. For MAPAs, each CA may need to enter into a separate agreement with the taxpayer to allow the particular jurisdiction to implement the agreement.

Interaction with available domestic remedies or procedures

• Multilateral MAPs — The MoMA indicates that, regardless of the legal basis relied upon, CAs should accept all eligible multilateral MAP requests even if domestic remedies are pending or have been finalized in any relevant jurisdictions. The MoMA recommends that CAs define rules that would apply where taxpayers have chosen to pursue domestic proceedings along with the MAP request, recognizing that some jurisdictions may discuss MAP cases in the bilateral stage only if domestic procedures are suspended (e.g., pursuit of a court case) whereas other jurisdictions may allow MAP and domestic procedures to run in parallel.
• MAPAs — The MoMA notes that, where audits have been started in respect of a transaction for previous years in one or more jurisdictions, CAs may consider whether they would accept a case into the APA process. Also, the start of an audit should not automatically end APA discussions that are ongoing so that the tax certainty that is provided by an APA is not hindered.

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.

Implications

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.

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

Ernst & Young Belastingadviseurs LLP (Netherlands)

• Ronald van den Brekel | ronald.van.den.brekel@nl.ey.com
• Marlies de Ruiter | marlies.de.ruiter@nl.ey.com

Ernst & Young Solutions LLP (Singapore)

• Luis Coronado | luis.coronado@sg.ey.com

Ernst & Young LLP (United Kingdom)

• Joel Cooper | joel.cooper@uk.ey.com
• Astrid Vroom | astrid.vroom@uk.ey.com
• Emma Lobo | elobo@uk.ey.com

Ernst & Young LLP (United States)

• Barbara M. Angus | barbara.angus@ey.com
• Tracee Fultz | tracee.fultz@ey.com

____________________________

ENDNOTES

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.