We believe that Mutual Agreement Procedure (MAP) is the most effective and efficient process available to taxpayers when looking to resolve double taxation due to the nature of the government-to-government negotiations and the focus on effective dispute resolution by the Organisation for Economic Cooperation and Development (OECD).
Dispute Resolution Specialists
Mazars UK has a team of dispute resolution specialists, both in international tax and transfer pricing, who have a good working relationship with the UK Competent Authority (“CA”), have years of experience in working MAP cases, and who believe that, in general, this would be the most effective route to take when looking to resolve double taxation.
The Benefits of MAP
This article provides an overview of the significant benefits of using MAP through the UK’s Double Taxation Treaty (“DTT”) network to resolve international tax disputes. These disputes can cover areas such as:
- Taxation not in accordance with the DTT, referred to as “double taxation” throughout;
- Residency tiebreakers;
- Determination of and attribution of profits to a permanent establishment (“PE”);
- Any other disputes in relation to the interpretation of specific articles within the DTT.
For the purposes of this article, we focus on the use of MAP for resolving double taxation arising in a transfer pricing context. There may be other routes available to taxpayers in order to resolve double taxation, such as Alternative Dispute Resolution (“ADR”), domestic litigation, arbitration, or “doing nothing”. These routes, however, are not considered further in this article.
Effective Dispute Mechanism
MAP enables the competent authorities of DTT partners to interact with the intention to resolve international tax disputes, the main issue being double taxation due, for example, to an adjustment made by a tax authority to an inter-company transaction.
We believe that MAP is the most effective and efficient process available to taxpayers when looking to resolve double taxation, due to the nature of the government-to-government negotiations. This is reflected by:
- The latest HMRC statistics, where 100% of double taxation was resolved in 85% of the 95 transfer pricing related MAP cases closed during the 2018/19 fiscal year. Of all of the cases settled by HMRC, only 2% resulted in no agreement being reached; and
- The 2018 Organisation for OECD statistics, where 100% of double taxation was resolved in 78% of the 1,148 transfer pricing related MAP cases closed in 2018.
The UK has the largest DTT network in the world, with almost 130 in place. The HMRC CA team has strong working relationships with other CA teams around the world, and a long history and great experience of working cases through MAP.
Indeed, the MAP peer review process under Base Erosion and Profit Shifting (“BEPS”) Action 14 recently recognised the current strengths of MAP in the UK, showing “the UK is a strong DTT partner with a well-resourced team, which takes a principled and pragmatic approach to MAP”.
MAP is highly effective at resolving double taxation vs. domestic legal routes. On average, HMRC would take around two years to resolve transfer pricing cases through MAP. There are no fees to pay to HMRC for accessing MAP or during the process.
In addition, it is highly unlikely the judicial route would eliminate the double taxation in the first instance or resolve it within two years. In terms of advisor fees, MAP is considerably cheaper than litigation procedures, and more likely to successfully resolve the dispute.
In the UK, there are very few restrictions to entering MAP where a taxpayer has been or will be taxed not in accordance with the DTT, or where there is a dispute in relation to the application or interpretation of a certain article. The key consideration in terms of access is the specific time limits set out in the MAP article of the relevant DTT, as some years may be time barred if a request is not submitted by the relevant deadline (either in the DTT or UK domestic law).
Any additional tax charge determined by HMRC through a transfer pricing adjustment can be stood over whilst waiting to resolve MAP. This is the case in a number of other OECD countries as well.
The Mazars UK tax dispute and resolution team has extensive expertise and experience and is on hand and happy to help with any questions you may have, so feel free to contact us.
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