OECD moves forward to make treaty-related dispute resolution mechanisms more effective.
The OECD is moving forward with its goal of making treaty-related dispute resolution mechanisms more effective under the Mutual Agreement Procedure (MAP), the dispute resolution provision included in the OECD model tax convention. As part of this initiative, the OECD released key documents that will form the basis of the MAP peer review and monitoring process, which detail 21 elements used to deliver the minimum standard that participating countries are required to implement, together with 12 best practices. Peer reviews will be conducted in batches starting in December 2016. Canada is in the first batch, along with other countries including the UK and the United States.
The ultimate goal for the OECD is to eliminate double taxation and/or taxation that is not in accordance with treaty provisions, and to help resolve tax-treaty related disputes in a timely and efficient manner. The OECD is currently seeking taxpayer feedback on their MAP experience with the jurisdictions being assessed in the first batch (via questionnaire) by November 28, 2016. The jurisdictions being assessed first are Belgium, Canada, the Netherlands, Switzerland, the UK and the United States.
Action 14 under the BEPS plan recommended a stronger treaty-dispute resolution process. The OECD Model Tax Convention provides a mechanism, independent from the ordinary legal remedies available under domestic law, through which the competent authorities of the Contracting States may eliminate double taxation and/or resolve differences or difficulties regarding the interpretation or application of the Convention on a mutually-agreed basis. This mechanism, known as the mutual agreement procedure (MAP), is important to the proper application and interpretation of tax treaties. In particular, it is intended to ensure that taxpayers entitled to the benefits of the treaty are not subject to double taxation or taxation in a manner that is not in accordance with the terms of the treaty. This is particularly relevant in resolving double taxation on transfer pricing reassessments in various countries.
The measures developed under Action 14 aim to strengthen the effectiveness and efficiency of the MAP process. They aim to minimize the risks of uncertainty and unintended double taxation by ensuring the consistent and proper implementation of tax treaties, including the effective and timely resolution of disputes regarding their interpretation or application through MAP.
New OECD MAP documents
The released documents include:
The new review process will be based on existing treaties with no requirement for jurisdictions to negotiate any new treaties. The methodology for the MAP process contains the possibility for developing countries to defer the peer review, recognizing their capacity constraints.
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