Tag: Dispute resolution

IRS publishes new interim Guidance on Review and Acceptance of APA Submissions

In a memorandum issued April 25, 2023, the IRS provides guidance to their employees of the Treaty and Transfer Pricing Operations practice area in the Large Business and International Division with respect to requests from taxpayers for an APA with the IRS. The guidance instructs IRS personnel on how to review and, where appropriate, accept taxpayer APA requests to align the processes for APAs to be consistent with IRS’ strategy and maximize the probability of successful, timely, and comprehensive resolution of transfer pricing issues for both taxpayers and the IRS. Visit IRS’ webpage for more information on the US Advance Pricing and Mutual Agreement Program. IRS Interim APA Guidance ...

TPG2022 Chapter VI Annex II – Hard To Value Intangibles – 3. Dispute prevention and resolution

3. Dispute prevention and resolution in relation to the HTVI approach 34. The purpose of this guidance is to improve consistency in the application of the HTVI approach by jurisdictions, thus reducing the risk of economic double taxation. In addition to this guidance, there may be other tools at the disposal of taxpayers to avoid instances of double taxation and enhance tax certainty in HTVI transactions. 35. In particular, Chapter IV of these Guidelines discusses in detail advance pricing arrangements (APAs), which if concluded bilaterally or multilaterally between treaty partner competent authorities provide an increased level of certainty in the jurisdictions involved, lessen the likelihood of double taxation, and may proactively prevent transfer pricing disputes. Recognising the role of APAs in preventing double taxation and providing certainty to taxpayers, paragraph 6.193 of these Guidelines prevents the application of the HTVI approach when the transfer of the HTVI is covered by a bilateral or multilateral APA in effect for the period in questions between the jurisdictions of the transferee and the transferor. 36. In this regard, the Final BEPS Report for Action 14 “Making Dispute Resolution Mechanisms More Effective” (BEPS Report on Action 14) recommends as a best practice the implementation of bilateral APAs, as soon as a jurisdiction has the capacity to do so (Best Practice no. 4). Furthermore, one of the elements of the BEPS Report on Action 14 is that countries with bilateral APA programmes provide for the rollback of APAs in appropriate cases, subject to the applicable time limits where the relevant facts and circumstances in the earlier tax years are the same and subject to the verification of these facts and circumstances on audit. 37. In the event that the application of the approach to HTVI leads to double taxation, the guidance in paragraph 6.195 states that it would be important to permit resolution of such cases through access to the mutual agreement procedure under the applicable treaty. Accordingly, this guidance should be read in conjunction with Article 25 and its Commentary and the commitment made in the Final BEPS Report on Action 14. That Report describes the minimum standard on dispute resolution to which the members of the Inclusive Framework on BEPS have committed, which consists of specific measures to remove obstacles to an effective and efficient mutual agreement procedure. 38. In the context of the HTVI approach it is especially relevant that under Article 25 the mutual agreement procedure “can be set in motion by the taxpayer without waiting until the taxation considered by him to be not in accordance with the Convention has been charged against or notified to him. To be able to set the procedure in motion, he must, and it is sufficient if he does, establish that the actions of one or both of the Contracting States will result in such taxation, and that this taxation appears as a risk which is not merely possible but probable†(see paragraph 14 of the Commentary to Article 25 of the Model Tax Convention). This possibility under the applicable tax treaty may alleviate some of the concerns arising in relation to timing issues and reduce the instances of unresolved double taxation. 39. Finally, one of the best practices recommended in the BEPS Report on Action 14 and that is relevant for HTVI transactions is that, subject to the requirements of paragraph 1 of Article 25, countries implement appropriate procedures to permit, in certain cases and after an initial tax assessment, taxpayer requests for the multiyear resolution through the MAP of recurring issues with respect to filed tax years, where the relevant facts and circumstances are the same and subject to the verification of such facts and circumstances on audit ...

Annex to Chapter VI – Hard To Value Intangibles – 3. Dispute prevention and resolution

3. Dispute prevention and resolution in relation to the HTVI approach 34. The purpose of this guidance is to improve consistency in the application of the HTVI approach by jurisdictions, thus reducing the risk of economic double taxation. In addition to this guidance, there may be other tools at the disposal of taxpayers to avoid instances of double taxation and enhance tax certainty in HTVI transactions. 35. In particular, Chapter IV of these Guidelines discusses in detail advance pricing arrangements (APAs), which if concluded bilaterally or multilaterally between treaty partner competent authorities provide an increased level of certainty in the jurisdictions involved, lessen the likelihood of double taxation, and may proactively prevent transfer pricing disputes. Recognising the role of APAs in preventing double taxation and providing certainty to taxpayers, paragraph 6.193 of these Guidelines prevents the application of the HTVI approach when the transfer of the HTVI is covered by a bilateral or multilateral APA in effect for the period in questions between the jurisdictions of the transferee and the transferor. 36. In this regard, the Final BEPS Report for Action 14 “Making Dispute Resolution Mechanisms More Effective” (BEPS Report on Action 14) recommends as a best practice the implementation of bilateral APAs, as soon as a jurisdiction has the capacity to do so (Best Practice no. 4). Furthermore, one of the elements of the BEPS Report on Action 14 is that countries with bilateral APA programmes provide for the rollback of APAs in appropriate cases, subject to the applicable time limits where the relevant facts and circumstances in the earlier tax years are the same and subject to the verification of these facts and circumstances on audit. 37. In the event that the application of the approach to HTVI leads to double taxation, the guidance in paragraph 6.195 states that it would be important to permit resolution of such cases through access to the mutual agreement procedure under the applicable treaty. Accordingly, this guidance should be read in conjunction with Article 25 and its Commentary and the commitment made in the Final BEPS Report on Action 14. That Report describes the minimum standard on dispute resolution to which the OECD and G20 countries have committed, which consists of specific measures to remove obstacles to an effective and efficient mutual agreement procedure. 38. In the context of the HTVI approach it is especially relevant that under Article 25 the mutual agreement procedure “can be set in motion by the taxpayer without waiting until the taxation considered by him to be not in accordance with the Convention has been charged against or notified to him. To be able to set the procedure in motion, he must, and it is sufficient if he does, establish that the actions of one or both of the Contracting States will result in such taxation, and that this taxation appears as a risk which is not merely possible but probable†(see paragraph 14 of the Commentary to Article 25 of the Model Tax Convention). This possibility under the applicable tax treaty may alleviate some of the concerns arising in relation to timing issues and reduce the instances of unresolved double taxation. 39. Finally, one of the best practices recommended in the BEPS Report on Action 14 and that is relevant for HTVI transactions is that, subject to the requirements of paragraph 1 of Article 25, countries implement appropriate procedures to permit, in certain cases and after an initial tax assessment, taxpayer requests for the multiyear resolution through the MAP of recurring issues with respect to filed tax years, where the relevant facts and circumstances are the same and subject to the verification of such facts and circumstances on audit ...

OECD Model Tax Convention 2017

A new 2017 edition of the OECD Model Tax Convention has been released, incorporating significant changes developed under the OECD/G20 project to address base erosion and profit (BEPS). The OECD Model Tax Convention, a model for countries concluding bilateral tax conventions, plays a crucial role in removing tax related barriers to cross border trade and investment. It is the basis for negotiation and application of bilateral tax treaties between countries, designed to assist business while helping to prevent tax evasion and avoidance. The OECD Model also provides a means for settling on a uniform basis the most common problems that arise in the field of international double taxation. The 2017 edition of the OECD Model mainly reflects a consolidation of the treaty-related measures resulting from the work on the OECD/G20 BEPS Project under Action 2 (Neutralising the Effects of Hybrid Mismatch Arrangements), Action 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances), Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status) and Action 14 (Making Dispute Resolution More Effective). See the also the Commentary on article 9 concerning the taxation of associated enterprises, and Commentary on article 7 concerning the taxation of business profits. The New Model Tax Convention ...

OECD Report, Making Dispute Resolution Mechanisms More Effective, Action 14 – 2015 Report

OECD (2015), Making Dispute Resolution Mechanisms More Effective, Action 14 – 2015 Report, OECD/G20 BEPS Project, After two years of work, the 15 actions have now been completed. All the different outputs, including those delivered in an interim form in 2014, have been consolidated into a comprehensive package. The BEPS package of measures represents the first substantial renovation of the international tax rules in almost a century. Once the new measures become applicable, it is expected that profits will be reported where the economic activities that generate them are carried out and where value is created. BEPS planning strategies that rely on outdated rules or on poorly co-ordinated domestic measures will be rendered ineffective. Implementation therefore becomes key at this stage. The BEPS package is designed to be implemented via changes in domestic law and practices, and via treaty provisions, with negotiations for a multilateral instrument under way and expected to be finalised in 2016. OECD and G20 countries have also agreed to continue to work together to ensure a consistent and co-ordinated implementation of the BEPS recommendations. Globalisation requires that global solutions and a global dialogue be established which go beyond OECD and G20 countries. To further this objective, in 2016 OECD and G20 countries will conceive an inclusive framework for monitoring, with all interested countries participating on an equal footing. A better understanding of how the BEPS recommendations are implemented in practice could reduce misunderstandings and disputes between governments. Greater focus on implementation and tax administration should therefore be mutually beneficial to governments and business. Proposed improvements to data and analysis will help support ongoing evaluation of the quantitative impact of BEPS, as well as evaluating the impact of the countermeasures developed under the BEPS Project. OECD (2015), Making Dispute Resolution Mechanisms More Effective, Action 14 – 2015 Report, OECD-G20 BEPS Project ...

OECD’s Manual on Effective Mutual Agreement Procedures (MEMAP)

The OECD Manual on Effective Mutual Agreement Procedures (MEMAP) is part of a broader project to improve the functioning of existing international tax dispute procedures and to develop supplementary dispute resolution mechanisms. More information about the project, the proposed supplementary dispute resolution mechanism, and other suggested improvements to the Mutual Agreement Procedures (MAP) process can be found at www.oecd.org under Dispute Resolution. The Manual is intended as a guide to increase awareness of the MAP process and how it should function. It will provide tax administrations and taxpayers with basic information on the operation of MAP and identify best practices for MAP without imposing a set of binding rules upon Member countries. The following points are important elements to consider in understanding the status of the manual and its interaction with other OECD guidance: The manual does not, and is not intended to, modify, restrict or expand any rights or obligations contained in the provision of any tax convention. Information contained in this manual complements, and should not be considered a substitute for, the criteria, procedures, and guidance specified in the current versions of the OECD Model Tax Convention on Income and Capital (OECD Model Tax Convention) and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Transfer Pricing Guidelines). To the extent that there are any statements or information in the MEMAP which appear to conflict, or to be incompatible with a convention, domestic guidance provided by a country, the OECD Model Tax Convention, its Commentary, or the OECD Transfer Pricing Guidelines, then the latter guidance is controlling. “Best practice†is the term used in this manual to describe what is generally thought to be the most appropriate manner to deal with a MAP process or procedural issue. There is no priority or significance associated with their order or with the length of discussion of a particular practice. Although taxpayers and tax administrations should ideally strive towards implementing these best practices, it is recognised that it may not always be possible to apply a best practice as described in the manual or there may be situations where their application may not be appropriate. OECD MEMAP ...