1.3 What/Who is a competent authority?
1.3.1. Overall purpose of a competent authority
Generally speaking, a competent authority is committed to ensuring a good faith application of a tax convention and endeavours to resolve competent authority requests in accordance with the applicable tax convention, the OECD’s Model Tax Convention and the OECD Transfer Pricing Guidelines (see note 1 ). To fully carry out this obligation, every effort should be made, including both competent authorities looking for appropriate opportunities to compromise, to reach a satisfactory resolution of the issues involved.
Best Practice Nº3: Principled approach to resolution of cases
In the resolution of MAP cases, a competent authority should engage in discussions with other competent authorities in a principled, fair, and objective manner, with each case being decided on its own merits and not by reference to any balance of results in other cases. To the extent applicable, the Commentary to the OECD Model Tax Convention and the OECD Transfer Pricing Guidelines are an appropriate basis for the development of a principled approach.
As part of a principled approach to MAP cases, competent authorities should be consistent and reciprocal in the positions they take and not change position on an issue from case to case, depending on which side of the issue produces the most revenue. Although a principled approach is paramount, where an agreement is not otherwise achievable, both competent authorities should look for appropriate opportunities for compromise in order to eliminate double taxation.
To the extent possible, competent authorities who face significant recurring issues in their bilateral relationship may wish to reach agreement on the consistent treatment of such issues.
In order to improve the MAP process, competent authorities ideally strive to resolve cases in a timely manner and keep the taxpayer informed of the status of their request on an on-going basis. Once a decision has been made or a solution agreed to by the competent authorities on a particular case, the taxpayer should be advised of the decision in writing. It is understandable that a taxpayer may wish to know the basis of the competent authority decision or agreement on its case and therefore should be afforded a satisfactory explanation by the competent authorities. Each of these issues is dealt with in the relevant section of this manual.
Note 1: Other relevant sources such as other model tax conventions and commentaries may be useful as well, depending upon the origin or basis of a particular tax convention.