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4. MAP and domestic law

4.2. Taking protective measures to preserve ability for MAP agreement to be implemented

The OECD Model Tax Convention provides an avenue of recourse as established in Paragraph 1, of Article 25, “…irrespective of the remedies provided by the domestic law of those States…”.  Paragraph 2 of the same article provides the means by which a mutual agreement is implemented:  “[a]ny agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States.”

However, not all countries follow the exact wording of the OECD Model Tax Convention in their specific treaties, as noted in Subsection 3.2.2. Time limits for implementation of relief where treaties deviate from the OECD Model.  As a result, it is advisable that taxpayers verify the wording of the applicable convention in order to protect their ability to obtain relief.  Alternatively, if specific OECD wording (or something similar) is not included in either the MAP article or other appropriate article of the convention, a taxpayer would be well advised to ensure that the years in question do not expire due to time limits under domestic law (i.e. becoming statute-barred).  Taking this extra precaution ensures that the competent authority is able to provide the requested relief despite the expiration of the normal domestic time limits.  In this regard, a taxpayer should protect its domestic rights by filing waivers of domestic time limits on assessments (if possible), a protective claim, or lodging an appeal, if applicable.

Valid waivers (or similar extensions of time limits) may permit tax administrations to make adjustments, thereby providing relief or otherwise amend an adjustment as a result of competent authority negotiations for years that would otherwise be legally barred from being adjusted.

Taxpayers should note that in most jurisdictions a domestic waiver, in itself, does not constitute a presentation of a request to a competent authority.  A separate presentation to the competent authority is typically required.  Again, depending upon the domestic tax system, taxpayers are sometimes responsible for keeping their other relevant income tax filings (regional, state, provincial, etc.) open, where consequential adjustments may be made.  

In cases involving related foreign parties, it is advisable also to take such timely action as may be necessary with the foreign tax administration, especially in cases where the applicable tax convention contains its own time limits or where it is unclear whether the applicable tax convention overrides the domestic time limits. The reason for doing so is that competent authorities will often not rescind an initial adjustment solely for the reason that the taxation year of the related foreign taxpayer is beyond the time limits (or its statute-barred date) in the foreign jurisdiction.  

In some jurisdictions, other levels of government (states, provinces, territories) have the ability to assess and charge income tax but are sometimes not bound by tax conventions. Even though competent authority settlements are often automatically implemented in these jurisdictions it would be prudent for taxpayers to review domestic law and where necessary preserve their domestic rights to appeal or otherwise change their taxes payable to coincide with the competent authority settlement.  

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