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1. Background

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

The MAP article in tax conventions allows designated representatives (the “competent authorities”) from the governments of the contracting states to interact with the intent to resolve international tax disputes.  These disputes involve cases of double taxation (juridical and economic) as well as inconsistencies in the interpretation and application of a convention.

Since most probable occurrences of double taxation are dealt with automatically in tax conventions through tax credits, exemptions, or the determination of taxing rights of the contacting states, the majority of MAP cases are situations where the taxation of an individual or entity is unclear. 

A noteworthy point is that the MAP article in most conventions does not compel competent authorities actually to reach an agreement and resolve their tax disputes. They are obliged only to use their best endeavours to reach an agreement.  Unfortunately, on occasion competent authorities are unable to come to an agreement.  Reasons for unresolved double taxation range from restrictions imposed by domestic law on the tax administration’s ability to compromise to stalemates on economic issues such as valuations.

Some conventions currently include arbitration clauses in their MAP articles.  However since these procedures are new, there has been limited guidance and experience in their use.  Even the EU Arbitration Convention that first entered into force in 1995 has only had a few actual cases concluded.  This lack of experience may change in the near future if more cases line up for arbitration and the OECD considers changes to the OECD Model Tax Convention to update guidance on supplementary dispute resolution mechanisms for MAP.  

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