Nature of specific case mutual agreement procedure under OECD Model (p. 609)
Once the taxpayer has filed an application for a specific case MAP under article 25(1) of the OECD Model … [t]he procedure…consists of two stages. The first stage is purely domestic between the taxpayer and the competent authorities, in which the competent authorities should try to resolve the case unilaterally if they consider the case to be justified. If the competent authorities consider the case to be justified and they cannot resolve the case unilaterally, only then may the case move to the second international stage. In this stage, the competent authorities endeavour to resolve a case in a bilateral manner, but are under no obligation to come to a resolution.
The taxpayer has hardly any role to play in the second stage of a MAP….
Low taxpayer involvement in arbitration procedure (p. 610)
[T]he mandatory arbitration provision in the MLI functions as an extension of the specific case MAP … . Mandatory arbitration, like the specific case MAP, is therefore construed as a procedure that takes place almost exclusively between the two disputing competent authorities with very limited involvement of the affected taxpayer. On the basis of article 19(10) of the MLI, the competent authorities themselves decide on the procedural rules of the arbitration proceedings, to the extent these have not been proscribed by the MLI, and on the basis of article 20 of the MLI, each of the competent authorities appoints a member to the arbitration panel….
[T]he arbitration procedure is designed in a way that as little control as possible is transferred to the taxpayer, the arbitration panel or any other third party.
Appointment of panel member by CTPA (p. 611)
[T]he only substantial improvement over the mandatory arbitration procedure of article 25(5) of the OECD Model is that, if one or both of the competent authorities fail to appoint a member of the arbitration panel in the manner and timeframe specified in article 19(2) of the MLI, a member is appointed by the highest ranking official of the Centre for Tax Policy and Administration (CTPA)….
[T]he author assumes that, if the affected taxpayer notifies the CTPA of the fact that the arbitration process has been improperly stalled by the competent authorities, the CTPA must take appropriate action and appoint a member….
Only cases where taxes have been charged are covered (p. 611)
Under the wording of article 19(l)(a) of the MLI, only cases where taxes have actually been charged can be submitted to arbitration….
Case must be accepted by both competent authorities (p. 611)
[O]nly those MAP cases that have been accepted by both the competent authorities and have moved to the international stage of the MAP have to be resolved, either in the MAP or through arbitration. Cases that have been rejected by one or both of the competent authorities and never made it to the international stage of the MAP cannot be resolved through arbitration….
Arbitration reservations are subject to other CTA party’s acceptance (p. 611)
Article 28(2)(a) permits the parties to the MLI to formulate one or more reservations with regard to the scope of cases that should be eligible for arbitration under Part VI. Such reservations are, under article 28(2)(b) of the MLI, subject to acceptance by the other contracting state to the CTA in question….
18 states with reservations re anti-abuse (p. 612)
[O]f the 26 states that have signed up for mandatory arbitration, only eight states have not made any reservations with regard to the scope of the arbitration. [fn 33: That is, Belgium, Fiji, Liechtenstein, Luxembourg, the Netherlands, Malta, Switzerland and the United Kingdom.]…
Eighteen states have made reservations to the scope of the arbitration provisions in Part VI. The most common reservation involves the exclusion of cases concerning the application or interpretation of anti-abuse provisions from arbitration. [fn 34: That is, Australia, Austria, Finland, Germany, Ireland, Italy, Mauritius, New Zealand, Portugal, Singapore, Slovenia and Spain.] Most states only exclude disputes over the interpretation or application of domestic anti-abuse provisions from the scope of arbitration, but some of these jurisdictions also exclude disputes over the interpretation or application of tax treaty based anti-abuse provisions from the scope of arbitration.
Reservations re no double taxation, dual residence or both authorities’ agreement (p. 612)
Certain states exclude cases that do not involve double taxation from the scope of arbitration. [fn 36: That is, Finland, France, Germany, Italy, Portugal, Slovenia and Spain….] It is unfortunate that these reservations have been made, as cases of double non-taxation or low taxation may be entirely legitimate under a tax treaty and not be the result of aggressive tax planning. For instance, many tax treaties apply a 0% withholding tax rate on dividends paid to jurisdictions that apply a participation exemption….
Certain states also exclude from arbitration cases involving dual resident persons, i.e. individuals and entities while others limit the scope to dual resident entities only. [fn 37: Italy and Slovenia exclude cases involving dual resident persons from the scope, while Japan and Sweden only exclude cases involving dual resident entities…]…
Some states exclude cases from arbitration where both competent authorities agree that the case is not suitable for arbitration. [fn 39: That is, France, Spain and Sweden.]…
Cdn and Portuguese limitation to factual disputes (p. 612)
Certain states do not exclude certain cases from arbitration, but, instead, list the types of cases that can be submitted to arbitration. Canada, for example, indicates that only those issues arising from a provision similar to article 4 of the OECD Model (Residence, but only with respect to individuals), article 5 (Permanent establishment), article 7 (Business profits), article 9 (Associated enterprises), article 12 (Royalties, but only insofar as between related parties to which a provision similar to article 9 applies) and any other provisions subsequently agreed by the contracting parties through an exchange of diplomatic notes, can be submitted to arbitration. Portugal adopts a similar approach…
Both of these states, therefore, limit arbitration to more factual transfer pricing cases and the question of the existence of a permanent establishment (PE).
Email this Content