3 How MAP works
3.2. Acceptability of a MAP request
3.2.3. Tax avoidance and MAP
Some competent authorities have had a tendency not to discuss a case where an adjustment is based upon anti-avoidance provisions of their country’s domestic laws. This means, generally, that if a competent authority were to consider a request for assistance in such a case, it would limit itself to forwarding the case to the other competent authority for any relief that the foreign competent authority may provide at the latter’s discretion.
It may be helpful to generally review whether domestic “anti-avoidance” laws conflict with a country’s obligations under the provisions of a tax convention. Of course this issue is very specific to the domestic laws of each country and any one particular tax convention. Some conventions specifically allow for domestic anti-avoidance provisions and therefore application of such provisions in a particular case may not necessarily be contrary to the convention. However, even under such conventions, the mere assertion that a domestic anti avoidance provision may apply to a particular case is not enough to justify excluding from MAP the question of whether there is or may be taxation in contravention of the convention.
In other situations where there isn’t an explicit exception, one is left to look at whether a particular domestic “anti avoidance” law or policy operates consistently with the convention and in particular, whether there is clear evidence that the convention is being abused, as described in OECD Model Tax Convention’s Commentary on Article 1. If it can be determined that the application of an anti-avoidance provision creates taxation not in accordance with the provisions of a convention, then in the absence of an explicit exception, the convention should override the domestic anti-avoidance law. Even in the absence of such a determination, however, countries should specifically observe the specific obligations enshrined in their tax treaties to relieve double taxation as long as there is no clear evidence that the tax treaties are being abused. In the absence of a special provision, there is no general rule denying perceived abusive situations going to MAP.
The Commentary (with proposed revisions) to the OECD Model Tax Convention provides more guidance on conflicts between conventions and domestic law and deals with this issue further.
Best Practice Nº11: Consideration of MAP assistance for cases described as “tax avoidance”
Given the wide scope of the meaning or interpretation of the term “tax avoidance” in some countries, it would be reasonable for competent authorities of both contracting states to, at a minimum, consider granting assistance in MAP cases where an action taken by a tax administration is done under anti-avoidance provisions, and the requirements of Article 25(1) are met. In the absence of a special provision, there is no general rule denying access to MAP in the case of perceived abusive situations. Even where a special provision exists, the mere assertion that a domestic anti avoidance provision may apply to a particular case is not enough to justify excluding from MAP the question of whether there is or may be taxation in contravention of the convention.
Moreover, if the use of an anti-avoidance provision is supplementary or secondary to another domestic law provision, or of questionable basis, consideration should be given to the adverse and cumulative nature of the results of double taxation in combination with any anti-avoidance penalties and interest. Accordingly, the outright denial of competent authority assistance may have an unintended and added punitive effect.
In cases where the authorised application of domestic “anti avoidance” laws prevent relief by one country’s competent authority, this should not prevent the other competent authority from providing any relief that the latter considers appropriate.