4. MAP and domestic law
4.5. Relief from collections, interest, and penalties
4.5.1. Penalties and MAP
For example, the application of a transfer pricing penalty is often a related compliance issue (such as a documentation penalty) that is not covered by the MAP of a tax convention. Accordingly, a competent authority may not be able to address the amount or applicability of a transfer pricing penalty (depending upon the structure of the penalty) with a foreign tax administration. However, in many cases a transfer pricing penalty is linked to, or is a function of, the amount of the adjustment to income. In these cases, if the amount of the income adjustment changes as the result of a MAP agreement, the penalty gets adjusted indirectly, regardless of whether the countries otherwise view the convention as covering penalties.
Even where an adjustment, which has given rise to a penalty, is wholly or partially sustained in a negotiated MAP agreement, some countries are willing to consider providing relief from the penalty through the MAP agreement depending upon whether the initial justification for the penalty remains after the review of the facts and circumstances by the competent authority.