Tag: Mutual agreement procedure (MAP)

Mutual agreement procedure (MAP) is a way through which tax administrations consult to resolve disputes regarding the application of double tax conventions. This procedure, described and authorised by Article 25 of the OECD Model Tax Convention, can be used to eliminate double taxation that could arise from a transfer pricing adjustment.

Germany vs “NO-MAP GmbH”, September 2019, Bundesfinanzhof, Case No IR 82/17

A request for mutual agreement and arbitration procedure between Spain and Germany was denied due to highly punishable violation of tax regulations committed by the taxpayer. The mutual agreement procedure according to the EU Arbitration Convention is of a mandatory nature and therefore leads to the elimination of double taxation if the requirements are met. However, if it is determined through legal or administrative proceedings that one of the companies involved has committed a highly […]

TPG2017 Chapter IV paragraph 4.78

As most OECD member countries at this time have not had much experience with the use of repatriation, it is recommended that agreements between taxpayers and tax administrations for a repatriation to take place be discussed in the mutual agreement proceeding where it has been initiated for the related primary adjustment.

TPG2017 Chapter IV paragraph 4.77

Where a repatriation is sought, a question arises about how such payments or arrangements should be recorded in the accounts of the taxpayer repatriating the payment to its associated enterprise so that both it and the tax administration of that country are aware that a repatriation has occurred or has been set up. The actual recording of the repatriation in the accounts of the enterprise from whom the repatriation is sought will ultimately depend on […]

TPG2017 Chapter IV paragraph 4.76

When the repatriation involves establishing an account receivable, the adjustments to actual cash flow will be made over time, although domestic law may limit the time within which the account can be satisfied. This approach is identical to using a constructive loan as a secondary transaction to account for excess profits in the hands of one of the parties to the controlled transaction. The accrual of interest on the account could have its own tax […]

TPG2017 Chapter IV paragraph 4.75

Where a repatriation involves reclassifying a dividend payment, the amount of the dividend (up to the amount of the primary adjustment) would be excluded from the recipient’s gross income (because it would already have been accounted for through the primary adjustment). The consequences would be that the recipient would lose any indirect tax credit (or benefit of a dividend exemption in an exemption system) and a credit for withholding tax that had been allowed on […]

TPG2017 Chapter IV paragraph 4.74

Some countries that have adopted secondary adjustments also give the taxpayer receiving the primary adjustment another option that allows the taxpayer to avoid the secondary adjustment by having the taxpayer arrange for the MNE group of which it is a member to repatriate the excess profits to enable the taxpayer to conform its accounts to the primary adjustment. The repatriation could be effected either by setting up an account receivable or by reclassifying other transfers, […]

TPG2017 Chapter IV paragraph 4.73

In light of the foregoing difficulties, tax administrations, when secondary adjustments are considered necessary, are encouraged to structure such adjustments in a way that the possibility of double taxation as a consequence thereof would be minimised, except where the taxpayer’s behaviour suggests an intent to disguise a dividend for purposes of avoiding withholding tax. In addition, countries in the process of formulating or reviewing policy on this matter are recommended to take into consideration the […]

TPG2017 Chapter IV paragraph 4.72

Secondary adjustments are rejected by some countries because of the practical difficulties they present. For example, if a primary adjustment is made between brother-sister companies, the secondary adjustment may involve a hypothetical dividend from one of those companies up a chain to a common parent, followed by constructive equity contributions down another chain of ownership to reach the other company involved in the transaction. Many hypothetical transactions might be created, raising questions whether tax consequences […]

TPG2017 Chapter IV paragraph 4.71

The Commentary on paragraph 2 of Article 9 of the OECD Model Tax Convention notes that the Article does not deal with secondary adjustments, and thus it neither forbids nor requires tax administrations to make secondary adjustments. In a broad sense, the purpose of double tax agreements can be stated as being for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital. Many countries do […]

TPG2017 Chapter IV paragraph 4.70

A secondary adjustment may result in double taxation unless a corresponding credit or some other form of relief is provided by the other country for the additional tax liability that may result from a secondary adjustment. Where a secondary adjustment takes the form of a constructive dividend any withholding tax which is then imposed may not be relievable because there may not be a deemed receipt under the domestic legislation of the other country.

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