3 How MAP works
3.2. Acceptability of a MAP request
3.2.2.Time limits for implementation of relief where treaties deviate from the OECD Model Tax Convention
Although the OECD Model Tax Convention states that a MAP agreement shall be implemented notwithstanding domestic time limits of the contracting states, a number of countries have reserved their position on this point. Thus, some conventions do not have any wording similar to the second sentence of Article 25(2) of the OECD Model Tax Convention; while other conventions provide explicitly that a country is not required to implement a MAP agreement in contravention of domestic law limitations if that country’s competent authority has not received notification that a MAP case exists within a specified period of time (e.g. within a specified number of years from the end of the taxable year to which the case relates).
Advance notice of time limits, as mentioned above in Best Practice Nº9: Liberal interpretation of time limits & advising of treaty rights, would be especially useful in cases where a convention differs from the OECD Model Tax Convention. In these instances, the tax administration could usefully inform a taxpayer of a need to notify the other competent authority of an adjustment within a specified time in order to preserve the possibility of MAP based relief from that other country.
Nevertheless, taxpayers should be cognizant that their failure to take timely protective measures to prevent the loss of rights because of the expiration of treaty based or domestic law time limitations in the case of conventions that deviate from the wording of the second sentence of Article 25(2) of the OECD Model Tax Convention may undermine the effectiveness of the MAP to provide relief from taxation not in accordance with the convention. Accordingly, taxpayers should take all reasonable steps to ensure that such time limitations do not expire without appropriate protective measures on their part.
In those specific cases where a convention deviates from the OECD Model Tax Convention and contains an explicit provision specifying that a competent authority must receive notification of a MAP case within a specific time period in order to be obligated to implement any relief through the MAP, it would be contrary to the spirit of the MAP for this requirement to be applied in an overly strict manner. For example, even though competent authorities may expect a notification to contain specific details of “tax not in accordance with a convention” such as identification of the issue, amounts of the adjustment, and calculations of the tax at issue, deadlines for these particular requirements should not be used to exclude a person unreasonably from obtaining relief through a MAP agreement which can be implemented by both countries. This is especially true in cases where a tax administration is delayed in presenting these details to the taxpayer. Furthermore, if a notification is considered improperly filed and therefore notification requirements have not been met, it would be appropriate for a competent authority to advise the taxpayer of the reasons and how the situation may be rectified.
Where a country’s tax administration has failed to advise a taxpayer of the likelihood of an adjustment until after the expiration of such a time limit explicitly set forth under a convention for notifying the other country’s competent authority of a MAP case, and the result is that the taxpayer would be barred from obtaining relief from the other country through implementation of a MAP agreement, the first country’s competent authority should, in most cases, be prepared to withdraw its country’s adjustment unilaterally in order to prevent double taxation.
Best Practice Nº10: Avoiding exclusion from MAP relief due to late adjustments or late notification
When an adjustment has the potential to give rise to a MAP case, tax authorities should notify the taxpayer as soon as possible of their intention to make the adjustment, especially in cases where the provisions in the MAP article of the applicable convention for presentation/notification of a case and implementation of a result differ from those of the OECD Model Tax Convention. This notice should not only advise the taxpayer of any requirements for initiating MAP (as mentioned in Best Practice Nº9) but also of requirements to obtaining relief via MAP, such as notifying the other country’s competent authority of the adjustment where such timely notification is necessary to preserve the right to MAP based relief from that other country.
Double taxation may arise if one country makes a late adjustment and the other country is unable or unwilling to grant relief through MAP because of time limitations in the treaty or in its domestic law. Where the obligation of implementing mutual agreements notwithstanding domestic time limits is explicitly stated in the convention, a good faith application of the convention requires adherence to that obligation.
In general, countries that have conventions that deviate from the wording of the second sentence of Article 25(2) of the OECD Model Tax Convention should try to ensure that their audit practices do not unduly create the risk of late adjustments for which taxpayers may not be able to obtain MAP relief. For their part, taxpayers should take all reasonable steps to ensure that time limitations in the other country do not expire without appropriate protective measures on their part.
Where an adjustment is proposed after the expiration of a time limitation specified in the bilateral treaty that eliminates a taxpayer’s opportunity to obtain relief through MAP from the other country, the country making the adjustment may be prepared to withdraw its adjustment unilaterally to prevent double taxation, except in cases where the adjustment relates to an act of fraud, wilful default, or gross negligence.