Transfer pricing

2 Making a MAP request - 2.1 What is a MAP request? - 2.1.1.

 

 
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2 Making a MAP request

2.1. What is a MAP request?

2.1.1. Typical scenarios requiring competent authority assistance

The following are some typical examples of taxation not in accordance with a tax convention where one might make a MAP request:

  • A taxpayer is subject to additional tax in one country because of a transfer pricing adjustment to the price of goods or services transferred to or from a related party in the other country. The taxpayer may request that the competent authority of the first country reduce or withdraw the adjustment and/or that the competent authority of the second country allow a corresponding adjustment to the income of the related party to prevent economic double taxation
  • A taxpayer is considered to be a resident of two treaty countries under each country’s domestic law, and each country asserts that the taxpayer is a resident of its jurisdiction for purposes of the tax convention. If unresolved, the taxpayer could be subject to taxation not in accordance with a convention and therefore liable for tax on the same income in both countries. A request to the competent authorities would initiate discussions between the competent authorities regarding the proper application of the tiebreaker rules contained in the residency article of the convention. The taxpayer should approach the competent authority of the country in which the taxpayer asserts residency and in some cases where it is incorporated.
  • withholding tax is levied beyond what is allowed within an applicable tax convention by one treaty country on a payment to a resident of the other country. The taxpayer may request the competent authority of its country of residence to address the taxation not in accordance with the tax convention with the competent authority of the other country.
  • A taxpayer operating a branch in one treaty country is subject to additional tax because of an adjustment by that treaty country of the income allocated to the branch. The taxpayer may ask the competent authority of its residence state to prevent double taxation by allowing an increased foreign tax credit or exemption or by seeking the other competent authority's agreement to give relief from the adjustment.
  • A taxpayer subject to tax as a resident in one country on income, including income from carrying on a business in the other treaty country, is taxed in that other treaty country on the business income earned there, despite not having a permanent establishment in that country under the tax convention. The taxpayer may request the competent authority of its country of residence to address the issue of taxation not in accordance with the tax convention with the competent authority of the other country.
  • A taxpayer is uncertain whether the convention covers a specific item of income, or is unsure of the characterisation or classification of the item related to a cross-border issue; the taxpayer may approach the competent authority for clarification.

In all of these situations a taxpayer may generally obtain assistance or relief via the MAP process.

In order for a taxpayer to seek assistance from its competent authority in cases of potential taxation not in accordance with the convention, it is generally sufficient if the resident establishes that such taxation is probable.  In other words, an actual adjustment is not necessary and taxpayers may contact the competent authority to notify of an impending adjustment.  Establishing the probability of inappropriate taxation does not mean that the taxpayer must prove this to a 51 percent probability, and in borderline cases it is appropriate for the competent authority to give the benefit of the doubt to the taxpayer for purposes of accepting the request.  Further guidance on the probability of inappropriate taxation and the extent required to submit a request is provided in Paragraph 12 of the Commentary on Article 25 of the OECD Model Tax Convention.  

A resident may also contact its competent authority for clarification as to the interpretation and application of a convention, as described in paragraph 3 of the MAP article.  In such cases, the conditions of paragraph 1 of the MAP article relating to the need to establish probability of inappropriate taxation do not need to be met.  

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