Dispute resolution

OECD Aims to Improve International Tax Disputes Mechanisms


Tokyo 13 March 2006

Unresolved international tax disputes and the resulting double taxation can be a significant barrier to the expansion of cross-border trade and investment.  Whilst existing dispute resolution procedures under bilateral tax treaties have been effective in settling the vast majority of cases, the uncertainty created by what has become an increasing inability to reconcile opposing positions on complex tax issues has drawn considerable attention from both business and government.

The OECD, in cooperation with the Business and Industry Advisory Committee to the OECD (BIAC) and with the support of the broader business community, held a public consultation in Tokyo on Monday 13 March 2006 to present its 2006 Public Discussion Draft and consult with business on specific proposals to improve the process for resolving international tax disputes.  Attending the conference were senior tax executives from large multinational companies, international tax experts and academics, representatives from OECD Member governments and key participants from the OECD’s groups dealing with this issue.
The consultation was opened by the Secretary General to the OECD, Donald Johnston, who noted “…the OECD plays an important role in providing a framework for discussion and consultation on international tax issues and we welcome the involvement of all participants.  This meeting provides an opportunity to strengthen our relationship with business and in particular with Japanese and Asian business”.

The discussion focused on two key elements to improve dispute resolution procedures:

  1. Improving the Existing Mutual Agreement Procedure (MAP) Process:  The MAP process, provided for in tax treaties, has been the traditional mechanism to resolve cross-border tax disputes and has worked reasonably well in the past.  However, both business and governments have suggested improvements aimed at increasing timeliness, transparency, and effectiveness of the process.  In response to these issues, the OECD is in the process of developing an online Manual for Effective Mutual Agreement Procedures and proposed changes to the Model Tax Convention’s Commentary which will help improve the effectiveness of the process and provide much needed guidance on the administrative procedures of MAP.
  2. Supplemental Dispute Resolution:  Supplementing the current MAP process, the OECD is also proposing an arbitration mechanism as one way to deal with those cases where governments cannot reach an agreement within a reasonable period of time.  This option would be included in the OECD Model Tax Convention and its Commentary for countries to implement where they believe it is appropriate to do so.  Key features of the proposal for arbitration are: 
  • It provides for mandatory resolution;
  • The mode of application would be settled by treaty partners via mutual agreement and a wide variety of approaches to arbitration are outlined in the OECD work; and
  • A request for arbitration may be made if a case remains unresolved after two years in the normal MAP proceedings.

The OECD’s Committee on Fiscal Affairs has for many years developed globally acceptable international tax norms to address potential tax controversy in advance.  The prevention of international tax disputes by developing a consensus on international tax policy is one of the cornerstones of the CFA’s work.  The Committee recognised, however, that in today’s rapidly changing business environment and despite its best efforts to achieve a consensus on the application of these norms, disputes will arise.  It is in this context that the Committee launched its work on improving the process for resolving cross-border tax disputes.

Participants welcomed the opportunity to discuss the new Discussion Draft (Proposals for Improving Mechanisms for the Resolution of Tax Treaty Disputes) released by the OECD on 1 February 2006.  They were supportive of the OECD proposal for arbitration and of the work done to date on the online “Manual on Effective Mutual Agreement Procedures” (MEMAP).   Richard Hammer, Chair of the BIAC Committee on taxation and Fiscal Affairs Committee, noted that ”Business strongly supports this OECD initiative and looks forward to reaching consensus on policy proposals that will bring much needed improvements to the dispute resolution process including the implementation of an arbitration clause in the OECD Model Tax Treaty.”    Jeffrey Owens, who leads the OECD tax work, concluded that “the discussions at this meeting will provide useful input into finalising the changes to the OECD’s Model Tax Convention and its Commentary and in producing a completed Manual which will assist both OECD and Non-OECD countries in improving the effectiveness of their dispute resolution procedures.”  He also stated that “The project is on schedule and participants can expect to see changes in the next revision to the Model Tax Convention.”
To encourage a wider distribution and input on these two issues, documents prepared for the consultation are available on the OECD website.  Further information can also be obtained from Jeffrey Owens, Director of OECD Centre for Tax Policy and Administration (jeffrey.owens@oecd.org) +81-80-1338-3416 in Tokyo (from March 13-15) or 33 (1) 4524 9108 in Paris.

The press is invited to a briefing with OECD Secretary-General Donald Johnston and representatives from the international business community on Tuesday, March 14 from 11:30 a.m. – 12:00 p.m. at the headquarters of Keidanren, 1-9-4, Otemachi Chiyoda-ku, Tokyo, Room 1001.


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