Transfer pricing

1 Background - 1.2. What is a Mutual Agreement Procedure (MAP)? - 1.2.2


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1. Background

1.2. What is a Mutual Agreement Procedure (MAP)?

1.2.2. Interpretation or application cases and double taxation in cases not otherwise provided for in a convention

Most MAP articles provide for the possibility of MAP in two areas other than instances of taxation “not in accordance with the Convention”.  The other two areas, usually mentioned in a provision corresponding to Article 25(3) of the OECD Model Tax Convention, involve questions of “interpretation or application of the Convention” and the elimination of double taxation in cases not otherwise provided for in a convention. 

Specifically, the first sentence of Article 25(3) typically authorises the competent authorities to try to resolve by mutual agreement “any difficulties or doubts arising as to the interpretation or application of the Convention”.  Under this provision, issues that require clarification or interpretation can be discussed and agreed upon between the contracting states.  These MAP discussions frequently relate to topics of a general nature which concern, or may concern, a category of taxpayers rather than a specific taxpayer's case.

The competent authorities may rely on this provision, for example, to reach agreement on the definition of a term used in the convention or to agree upon procedures for granting the relief called for by a convention.  Situations where this provision has been usefully applied include, for example:

Best Practice Nº1:  Resolving and publishing issues of interpretation or application

Many issues of a general nature regarding the interpretation or application of a treaty could be successfully addressed by competent authorities’ exercising their ability under the first sentence of Article 25(3) to reach a mutual agreement on those issues.

Competent authorities could greatly improve the implementation of treaties by identifying and pursuing opportunities to use this authority.  Publishing any mutual agreements reached under Article 25(3) that apply to all or a general category of taxpayers would improve guidance and proactively resolve future disputes.  Making such agreements public is therefore to be encouraged, unless the nature of the agreement (e.g., certain compliance related agreements involving procedures for criminal cases) means that its publication would undermine its administrative goal.

The second sentence of Article 25(3) also typically authorises the competent authorities to “consult together for the elimination of double taxation in cases not provided for in the Convention”.  This authority might allow the competent authorities to address, for example, a case where a third country resident has permanent establishments in each of the two treaty countries, and they disagree about the amount of profits attributable respectively to each of the two locations.   

Best Practice Nº2:  Robust use of Article 25(3) power to relieve double taxation

The authority granted by Article 25(3) to resolve cases of double taxation not provided for in the Convention is closely linked to the fundamental purpose of the Convention, and competent authorities could faithfully fulfill that purpose by their willingness to exercise that authority in relevant cases, provided there is no domestic law impediment to doing so.



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