November 20, 2024 OECD holds Tax Certainty Day addressing dispute prevention and resolution developments
Executive summary On 15 November 2024, the OECD held its sixth annual OECD Tax Certainty Day. Speakers at the virtual meeting included members of the OECD Secretariat, country delegates representing finance ministries and tax authorities and company tax executives. During the event, the OECD released the 2023 statistics on MAP and APA, followed by a presentation of the 2023 MAP and APA awards. The discussion also included the ongoing work on tax certainty under Pillar Two of the BEPS 2.0 project and the global tax certainty landscape more broadly. Detailed discussion Introduction The meeting began with an introductory presentation by the OECD Secretariat, reflecting on the tax certainty journey and progress made to date, which was largely attributed to the efforts under Action 14 (Making Dispute Resolution Mechanisms More Effective) of the Base Erosion and Profit Shifting (BEPS) project. The MAP process was described as effective and efficient, supported by a robust peer review process and underscored by MAP statistics that reflect the commitment of tax administrations to MAP improvements. The OECD Secretariat noted that dispute resolution alone is not sufficient and that increasingly the MAP Forum's work has become more focused on dispute prevention mechanisms. APAs are a vital tool to avoid disputes before they arise and there is a growing reliance on APAs across the globe, as well as efforts by both developed and developing jurisdictions to improve or introduce APA programs. Beyond APAs, other mechanisms such as joint audits or the International Compliance Assurance Programme (ICAP) were cited as having generated significant results, which is reflected in the most recent ICAP statistics.1 The Secretariat expressed the view that tax certainty is embedded into the BEPS 2.0 project, noting as examples the design of the Pillar Two Global anti-Base Erosion (GloBE) rules and safe harbors and the Pillar One Amount A Tax Certainty Framework. 2023 MAP and APA statistics This session began with the release of the 2023 MAP and APA statistics by the OECD Secretariat, followed by a discussion of the current landscape with respect to tax certainty. Since 2016, the OECD has published annual MAP statistics as part of BEPS Action 14. Under Action 14, countries committed to a minimum standard to resolve treaty-related disputes in a timely, effective and efficient manner. This commitment includes annual reporting of MAP statistics to provide transparency around dispute resolution efforts and progress. For 2023, the MAP statistics include information for more than 140 jurisdictions. In addition, for the first time, the OECD this year also released APA statistics based on information for 46 jurisdictions with bilateral APA programs. Key highlights in the 2023 statistics include: MAP case inventory for new cases (post-2016) have decreased for the first time Last year (2023) saw a decrease in inventory of approximately 16% for new Transfer Pricing (TP) cases and an increase of 2.8% for new "Other" cases compared with 2022.2 Overall MAP inventories decreased by 3.8%, with a relatively even split between TP cases and Other cases. The OECD Secretariat noted that they believe the overall decrease may be due to Competent Authorities' working efficiently and resolving more cases (as reflected by the record number of cases closed in 2023), as well as fewer cases entering the MAP process. In 2023, a high number of old cases (pre-2016) were closed and, at the end of the year, old cases formed only 13% of total MAP inventory. The number of new cases opened dropped slightly, with 2336 cases started during 2023, compared to approximately 2500 cases started during 2022. MAP cases taking a longer time to reach a resolution Significantly more MAP cases were closed in 2023 than in 2022 (approximately 226 cases). In particular, there was a 7.4% rise in TP cases closed and a 15.8% rise in Other cases closed. Factors cited by the OECD Secretariat as contributing to this progress include the addition of trained staff. The time to close cases increased from 28.9 months (2022) to 32 months (2023) for TP cases and increased from 22.2 months (2022) to 23.4 months (2023) for Other cases. The average time taken across all cases was 27.3 months, which is slightly above the 24-month target. The OECD Secretariat suggested that this increase may be due to prioritization of pre-2016 and older cases. These most recent MAP statistics also include a new additional data point regarding the age of cases in MAP inventory. The 2023 MAP statistics show that 52% of open MAP cases are less than two years old and 24% are between two and four years old, highlighting the importance of prioritizing the older cases. A continued high concentration of MAP cases Almost 75% of total MAP cases are concentrated in 10 countries3 and approximately 47% in five countries (Germany, Belgium, France, Italy and the Netherlands). Out of the top 15 countries in terms of MAP cases, more than half were able to reduce their MAP inventory in 2023, with some countries reducing their inventory by 100 cases (France for TP cases and Germany for Other cases). Each reporting jurisdiction's performance with respect to key indicators for MAP cases can be seen in separate breakdown reports and compared through the OECD's interactive tool. From a broader perspective, a far greater number of countries are engaging in MAP. Back in 2016 only 51 countries had MAP cases but now almost 100 countries have MAP cases, based on the 2023 MAP statistics. The work on BEPS Action 14 has brought more attention to MAP and smaller countries or those with no or limited MAP experience now have published OECD MAP profiles and Competent Authority details and, in some cases, have published MAP guidance. MAP outcomes have remained generally positive In 2023, 74% of total MAP cases closed and fully resolved the issue under dispute, either through:
Approximately 4% of cases were denied access to MAP. Double tax treaties typically state that Competent Authorities shall "endeavor" to arrive at a satisfactory resolution through MAP, and the OECD Secretariat noted that the MAP Forum is currently discussing this point to help ensure that Competent Authorities are seeking solutions and coming toward a compromise to resolve MAP cases. They observed that there will always be a risk of no agreement where arbitration provisions are not included in a treaty. When considering the top 20 jurisdictions in terms of MAP cases, the proportion of cases closed with full agreement varied across jurisdictions from approximately 40% to 80%; the proportion of cases closed with unilateral relief also varied widely from close to 0% to approximately 36%. APA statistics reported for the first time by 46 jurisdictions For the first time, the OECD released APA statistics based on statistics reported by 46 jurisdictions with bilateral APA programs. This is separate from the BEPS Action 14 efforts and was described as reflecting an additional commitment from countries to provide a more holistic view of their Competent Authority activities in both the dispute prevention and dispute resolution spaces. It was noted that not all the 46 jurisdictions reflected the same reporting period, but this level of granularity is available when reviewing the separate country breakdown reports. During 2023, more than 1,100 APAs were requested, more than 800 APAs were granted, only 15 were rejected when initiated and 100 closed for other reasons (e.g., the Competent Authorities could not reach agreement, the taxpayer withdrew the request, etc.). Overall, there were an average of more than 4,000 cases in overall APA inventories, with an average closure rate of 25% and on average 36.8 months to agree an APA. Consolidated Information on MAP (CIM) The OECD also published its second edition of the CIM, which provides an overview of all published information on MAP in each member jurisdiction of the OECD/G20 Inclusive Framework in one place and is updated and released annually. For each jurisdiction this includes, for example, recent developments concerning MAP, a brief overview of its MAP program and guidance, information about its Competent Authority and a summary of its MAP statistics. Tax certainty aspects of Pillar Two With the Pillar Two GloBE rules implemented or advancing toward implementation in 45 countries, the discussion in this session focused on how to prepare for disputes and deal with them when they arise. Pillar Two is intended to be based on a common set of rules and guidance with information return data to be available to all relevant tax authorities. However, administrative challenges to be faced include countries implementing rules at different paces, risk of fragmentation, differing interpretations of the rules and the need to upskill and train personnel. Although the Pillar Two rules are intended to apply consistently across jurisdictions, as countries implement through domestic legislation, there is a need for dispute resolution mechanisms specifically designed for GloBE. In terms of developing such mechanisms, panelists noted that a multilateral convention is being worked on currently, which includes discussions around a common legal basis and scope, among other points. Panelists also raised the idea of expanding ICAP to be used to address issues of interpretation and other disputes regarding Pillar Two, which the OECD's Forum on Tax Administration (FTA) is currently exploring. From a dispute prevention standpoint, panelists discussed the possibility of the OECD's setting clear timeframes for jurisdictions to adopt administrative guidance as it is rolled out, to reduce the risk of inconsistency across jurisdictions. Panelists also requested further guidance on specific areas of Pillar Two. Panelists stressed that early engagement across all stakeholder groups is critical as Pillar Two is rolled out, noting that they are hearing about examples of this happening at domestic and international levels. 2023 MAP awards At the close of the meeting, the OECD Secretariat announced the 2023 MAP, recognizing the efforts of Competent Authorities across a range of metrics in five categories:
FTA Plenary outcomes In addition to the annual Tax Certainty Day, the FTA met for the 17th Plenary on 13-15 November 2024. The theme of the Plenary was transforming tax administration, as set out in Tax Administration 3.0: The Digital Transformation of Tax Administration published by the OECD FTA on 8 December 2020. The three priorities agreed on at the Plenary were:
Implications The annual Tax Certainty Day provides useful information regarding the work being done on tax certainty by the OECD and participating jurisdictions. It highlights the ongoing work focused on further improving dispute prevention and dispute resolution mechanisms. This year's meeting also provided APA statistics for the first time. In addition, there was discussion around the shifts in balance and prevalence of MAP and APA as tax administrations increase their focus on prevention. The discussion also underscored the urgent need to establish dispute prevention and resolution mechanisms specifically designed for Pillar Two. Overall, the discussion reflected improvements in the MAP and APA areas, including the increasing number of countries where MAP is now available. However, there is still a way to go, and it is important to identify the reasons behind the drop in new applications and to ensure MAP access is readily available. MAP and APA remain key tools for resolving and preventing cross-border tax disputes. It is important for companies to monitor developments in the jurisdictions that are relevant to them and to consider how these tools can best be deployed to forestall or resolve controversy.
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