OECD: Initial impressions of MAP-related draft (BEPS Action 14)

OECD: Initial impressions of MAP-related draft

The Organisation for Economic Co-operation and Development (OECD) last week released a proposed discussion draft pursuant to Action 14 (Make dispute resolution mechanisms more effective) under the base erosion and profit shifting (BEPS) action plan.

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The following report provides initial impressions of the discussion draft [PDF 213 KB] under BEPS Action 14


The goal of BEPS Action 14 is to improve the effectiveness of the mutual agreement procedure (MAP) in resolving treaty-related disputes. The OECD’s proposed discussion draft attempts to identify comprehensively the obstacles that prevent countries from resolving disputes through MAP and to develop possible measures to address those obstacles.

Recognizing that there is no consensus on moving towards universal, mandatory binding MAP arbitration, the OECD’s report introduces a three-pronged approach to improving the resolution of treaty-related disputes through MAP:

  • Secure political commitments to eliminate taxation not in accordance with treaties
  • Provide new measures to improve access to MAP and improved procedures
  • Establish a monitoring mechanism to check the proper implementation of the political commitment

Guiding principles

The BEPS Action 14 discussion draft states that the OECD’s work in this area is guided by four principles:

  • Ensuing that treaty obligations related to MAP are fully implemented in good faith
  • Ensuring that administrative processes promote the prevention and resolution of treaty-related disputes
  • Ensuring that taxpayers can access MAP when eligible
  • Ensuring that cases are resolved when they are in MAP
For each of these principles, the discussion draft lists obstacles that may prevent the principle from being fully implemented and provides options as to how those obstacles could be addressed.

Section 1 - Ensuing that treaty obligations related to MAP are fully implemented in good faith.

One obstacle to ensuring that treaty obligations related to MAP are fully implemented in good faith may be the absence of an obligation to resolve MAP cases under Article 25. Accordingly, the importance of resolving cases under MAP could be clarified in treaty commentary.

Another potential obstacle is the absence of paragraph 2 of Article 9 in some treaties, which causes some countries to take the position that they are not obliged to make corresponding adjustments to grant access to MAP with respect to the economic double taxation that may otherwise result from a primary transfer pricing adjustment by a treaty partner. Thus, treaties could be amended to specifically include Article 9(2).

Section 2 - Ensuring that administrative processes promote the prevention and resolution of treaty-related disputes.

The effectiveness of MAP may be undermined by a variety of factors, including the lack of independence of the competent authority (CA) and inappropriate influence of considerations related to the negotiation of possible treaty changes, the CA’s lack of resources, or inappropriate performance indicators for the CA function and staff.

In addition, CAs may not actively employ their authority under Article 25(3) to pre-empt potential disputes by reaching mutual agreement on matters of a general nature involving treaty interpretation or application. CAs also may fail to consider the implications of a taxpayer’s MAP or advance pricing agreement (APA) case for other tax years.

Finally, field auditors in some countries may seek to enter into audit settlements requiring a taxpayer to forego access to MAP, and some countries may not have implemented bilateral APA programs. Addressing each of these shortcomings could help ensure an environment in which CAs are able to fully and effectively carry out their mandate

Section 3 - Ensuring that taxpayers can access MAP when eligible.

Obstacles to MAP access include complexity and lack of transparency of the procedures to access and use the MAP; excessive or unduly onerous documentation requirements; time limits to access MAP; and the requirement that the disputed tax be paid in order to access MAP.

In addition, the right to access MAP may be unclear when domestic or treaty-based anti-abuse rules have been applied or, conversely, when domestic law remedies also may apply.

MAP access also may be uncertain in the case of certain self-initiated taxpayer adjustments. Finally, MAP access may be denied by the unilateral decision of one CA that a taxpayer’s objection is not justified.

The draft discusses various ways in which these issues could be addressed or clarified.

Section 4 - Ensuring that cases are resolved when they are in MAP.

Certain of the main obstacles to the resolution of treaty-related disputes through MAP are issues related to MAP processes, including lack of a principled approach to the resolution of MAP cases; lack of co-operation, transparency or good CA working relationships; and the absence of a mechanism, such as MAP arbitration, to ensure the resolution of all MAP cases.

In addition, multilateral MAPs and APAs raise novel and complex issues for the traditionally bilateral MAP, and uncertainty exists around the consideration of interest and penalties in MAP. The discussion draft explores various options for improving these issues with MAP processes.


For more information, contact a tax professional with KPMG LLP:

Manal Corwin | +1 (202) 533 3127 | mcorwin@kpmg.com


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