Transfer pricing

5. Guidelines for competent authority operations - 5.2 Structuring the competent authority function


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5. Guidelines for competent authority operations

5.2. Structuring the competent authority function

The competent authority function needs sufficient human (skilled personnel), financial (in particular to pay for translations and travel/accommodation expenses for face-to-face meetings with other competent authorities) and other resources (access to company databases, industry data and foreign tax laws) to be able to meet its obligations under the Convention. In particular, human resources are likely to have the most fundamental impact on the Contracting State’s ability to operate an effective MAP program.

Sometimes the competent authority function is split between an area responsible for resolving taxpayer specific cases (i.e., taxpayer requests about taxation “not in accordance with the Convention” as described in the first two paragraphs of the MAP article, or cases of double taxation not provided for in the Convention as described in the third paragraph of the MAP article) and a policy area for issues involving general interpretation as well as general issues concerning the application of the tax convention where specific taxpayers are not involved.

Competent authorities often have areas of expertise within their offices to handle the wide range of MAP cases.  Ideally, the competent authority staff should be able to draw on individuals with the following areas of expertise:

• Legal analysis:  knowledge in the interpretation and application of the relevant tax Convention. This would include knowledge of domestic and foreign laws, regulations, case law and of generally accepted international standards such as the OECD Model Tax Convention and the OECD Transfer Pricing Guidelines.

• Economic analysis:  knowledge and understanding (in particular in transfer pricing cases) of the economic aspects of the transaction as well as knowledge of market, industry and commercial practices.

• Accounting and statistical data analysis:  knowledge of accounting standards and practices adopted by large taxpayers. In particular cases (e.g. MAP APAs for complex transfer pricing issues) knowledge in analysing statistical data is also required.

• Expertise in examination:  since the examination records are often the main information resource in the MAP case, knowledge of the examination process (documentation requirements, burden of proof etc.) and techniques (e.g. comparability searches) is also required. 

In some cases it is helpful to group files based upon geographical regions or industry specialisation, depending upon the composition of a competent authority’s inventory of MAP cases.  Industry specialisation may be advisable to strengthen industry knowledge or technical expertise, whereas geographical emphasis may assist in enhancing relationships between competent authorities if files are discussed with the same counterparts over a period of time.

In some countries the competent authority office is very small and therefore sometimes must rely upon expertise from elsewhere.  One benefit of a small competent authority office may be greater consistency; however the disadvantages of limited resources and the inability to build in-house expertise may make the competent authority function reliant upon other areas that may have their own priorities. In such situations, the responsible high level official should monitor closely the progress of the MAP cases and the management of resources.  

It is also important to “risk-assess” a MAP request at the earliest possible stage to enable the competent authority or the responsible high-level official to assign the MAP case in the most effective way. For example, when a case is highly complex and large amounts are at stake, or when a case involves the interpretation of a tax treaty article which may have wider implications on the State’s tax policy, it should be assigned to a high ranking senior officer or to qualified and experienced staff. On the other hand, routine cases involving limited amounts may be assigned to less experienced staff, assuming they are properly supervised. By adopting this approach, qualified and experienced staff can focus on the complex and difficult cases. At the same time, this approach reduces the risk of small cases being shelved over a long period of time.

Case or workload management has a significant effect on timelines for MAP cases.  A well-organized data management system can save significant time and prove extremely valuable in the management and monitoring of cases.  Case specific as well as aggregate program statistics can be useful in improving the performance and timeliness of a MAP program.  

To enhance the level of objectivity, it is recommended that competent authorities remain largely independent from the field staff who were directly or indirectly involved in the initial adjustment and that the latter should not take part in the competent authority discussions. However, with the agreement of the competent authorities, they may be asked to serve in a consultancy role in order to provide details of the case and the basis for any adjustments that have been made and answer factual queries that may arise.

A competent authority sufficiently staffed at an appropriate level to address typical or anticipated workload will greatly enhance the efficient resolution of issues and cases.  In addition to the appropriate number of staff, the appropriate skill set to address the issues at hand (for example, transfer pricing or treaty interpretation issues) would improve not only the qualitative output but also the efficacy of a MAP program.

Best Practice Nº23:   Independence and resources of a competent authority

In order to enhance the independence of a subsequent review of a case by a competent authority, it is recommended that competent authorities maintain a level of autonomy from the audit function of a tax administration.  

In some cases, the competent authorities may take a different approach from audit to explain an outcome or address an issue.  This may be a valid exercise, especially for a transfer pricing case and should not necessarily be considered as “redoing the audit”. For example, if a case is without merit and not well substantiated at the audit stage, the competent authority of the state that initiated the adjustment should provide unilateral relief by withdrawing the adjustment without engaging the other competent authority.  The guiding principle should be that the competent authority’s function is to ensure a fair and appropriate application of the convention, not to seek to uphold all adjustments proposed by the tax authorities of its country.

Independent and sufficient funding will also enhance the competent authorities’ autonomy and enable it to carry out its mandate without becoming overly reliant upon other areas of a tax administration which do not share the competent authorities’ primary objective, namely relieving double taxation.  Tax administrations should ensure that the competent authority function is given sufficient resources, including qualified personnel, funding, training, and other program needs, to be able to carry out MAP responsibilities in a timely, effective, and efficient manner.


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