ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

MANUAL ON EFFECTIVE MUTUAL AGREEMENT PROCEDURES

(MEMAP)

February 2007 Version

CENTRE FOR TAX POLICY AND ADMINISTRATION

 MANUAL ON EFFECTIVE MUTUAL AGREEMENT PROCEDURES (MEMAP)

PREFACE
This online 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/ctp under Dispute Resolution.

MEMAP 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.

*
Please note that the highlighting in this document is for text that is hyperlinked in the web version.

2
 TABLE OF CONTENTS

INTRODUCTION .......................................................................................................................................... 5
About this Manual....................................................................................................................................... 5
Purpose of the manual ............................................................................................................................. 5
Other references....................................................................................................................................... 6
1. BACKGROUND ................................................................................................................................. 7
1.1. What is a Tax Convention? .............................................................................................................. 7
1.1.1. Purpose of a tax convention .................................................................................................... 7
1.1.2. Double taxation juridical and economic .............................................................................. 8
1.2. What is a Mutual Agreement Procedure (MAP)?............................................................................. 8
1.2.1. Taxation of enterprises and individuals not in accordance with the Convention ................ 9
1.2.2. Interpretation or application cases and double taxation in cases not otherwise provided for
in a convention........................................................................................................................................ 9
1.3. What/Who is a Competent Authority? ........................................................................................... 10
1.3.1. Overall purpose of a competent authority............................................................................. 11
2. MAKING A MAP REQUEST........................................................................................................... 12
2.1. What is a MAP Request?................................................................................................................ 12
2.1.1. Typical scenarios requiring competent authority assistance................................................. 12
2.2. How to Make a Request for Competent Authority Assistance....................................................... 13
2.2.1. General format of a MAP request ......................................................................................... 14
2.2.2. Use of information within MAP process .............................................................................. 16
3. HOW MAP WORKS ......................................................................................................................... 17
3.1. The Basics ...................................................................................................................................... 17
3.2. Acceptability of a MAP Request .................................................................................................... 17
3.2.1. Time limits for requesting access to MAP............................................................................ 19
3.2.2. Time limits for implementation of relief where treaties deviate from the OECD Model ..... 20
3.2.3. Tax avoidance and MAP....................................................................................................... 22
3.2.4. Other potential barriers to MAP............................................................................................ 23
3.3. Role of the Taxpayer ...................................................................................................................... 23
3.3.1. Providing information to the competent authorities.............................................................. 23
3.3.2. Contributing to the MAP discussions ................................................................................... 24
3.3.3. Interaction between taxpayers and competent authorities..................................................... 24
3.4 Analysis and Evaluation by the Competent Authorities................................................................. 25
3.4.1. Position papers ...................................................................................................................... 26
3.5. Interaction between Competent Authorities ................................................................................... 27
3.5.1. Problematic cases.................................................................................................................. 28
3.5.2. Mediation .............................................................................................................................. 28
3.6. Competent Authority Agreements.................................................................................................. 29
3.7. Debriefing the Taxpayer................................................................................................................. 30
3.7.1. Transparency at the resolution stage..................................................................................... 30
3.8. What Happens When an Agreement is Reached? .......................................................................... 30
3.9. Recommended Timelines for MAP................................................................................................ 31
4. MAP AND DOMESTIC LAW.......................................................................................................... 33
4.1. Interaction between MAP and Domestic Recourse Provisions ...................................................... 33

3
 4.2. Taking Protective Measures to Preserve Ability for MAP Agreement to be Implemented ........... 33
4.3. Audit Settlements ........................................................................................................................... 34
4.4. Unilateral APA ............................................................................................................................... 35
4.5. Relief from Collections, Interest, and Penalties ............................................................................. 35
4.5.1. Penalties and MAP................................................................................................................ 36
4.5.2. Interest relief and MAP......................................................................................................... 36
4.5.3. Collections and MAP............................................................................................................ 37
4.6. Secondary Adjustments, Withholding Tax, and Repatriation on Transfer Pricing Adjustments ... 38
5. GUIDELINES FOR COMPETENT AUTHORITY OPERATIONS ................................................ 39
5.1. Authority and Accessibility............................................................................................................ 39
5.2. Structuring the Competent Authority Function .............................................................................. 39
5.3. Performance Indicators and Training ............................................................................................. 41
6. OTHER MAP PROGRAMS.............................................................................................................. 43
6.1. Accelerated Competent Authority Procedure (ACAP)................................................................... 43
6.2. Advance Pricing Arrangements (APAs)......................................................................................... 43
6.3. Other Types of MAP Proceedings.................................................................................................. 43
ANNEX 1 AN IDEAL TIMELINE FOR A TYPICAL MAP PROCESS................................................. 45
ANNEX 2 BEST PRACTICES ................................................................................................................. 47
ANNEX 3 MEMAP GLOSSARY............................................................................................................. 48

4
 INTRODUCTION

About this Manual

The aim of this online Manual on Effective Mutual Agreement Procedures (MEMAP) is to make available,
to both tax administrators and taxpayers in the Organisation for Economic Co-operation and
Developments (OECDs) Member countries and non-OECD Member countries, basic information on the
operation of Mutual Agreement Procedures (MAP) under bilateral tax treaties and to identify best practices
for MAP.

Purpose of the manual

The overall purpose of this manual is the continued improvement of the MAP process as it applies in
countries treaty relationships. For both OECD Member countries and non-OECD economies, this means
the promotion of greater consistency in how MAP issues are dealt with, as well as improving the timeliness
and effectiveness of the process.

This manual should be viewed as a general guide for the MAP process that highlights the best practices of
the competent authorities of the OECD Member countries. As such, the MEMAP will encourage countries
to improve the effectiveness of MAP. While the MEMAP does not impose a set of binding rules upon tax
authorities or taxpayers, it is intended to describe recommended approaches for conducting MAP activities.
The best practices for MAP developed by the MEMAP will facilitate and support the resolution of double
taxation cases and other cases eligible for MAP consideration, while remaining general enough to be
applicable to most jurisdictions.

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, and best practices are generally the
practices followed by most OECD countries. They are grouped functionally and there is no priority or
significance associated with their order or length of discussion. There may be certain situations where a
best practice as described in the MEMAP is not possible to apply or is not necessarily the best approach
to resolving a problem or issue in a particular case. Although taxpayers and tax administrations should
ideally strive towards implementing these best practices, it is recognised that there may be situations where
their application may not be appropriate.

The OECD website includes a series of country profiles on Mutual Agreement Procedures for OECD
Member countries, with information about the specific practices of the Member countries. In situations
where specific country guidance is not available for MAP, this manual should provide general guidance on
the process and on obtaining assistance from a competent authority.

The MEMAP is intended as a guide to increase awareness of the MAP process and how it should function.
It does not, and is not intended to, modify, restrict or expand any rights or obligations contained in the
provision of any tax convention. 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 or the OECD Transfer Pricing Guidelines, then the latter
guidance is controlling.

5
Other references

The topics covered in this manual relate to issues addressed by the OECD publications noted below.
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 these documents.

OECD Model Tax Convention on Income and Capital (OECD Model Tax Convention), as
amended from time to time.
The principles of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax
Administrations (OECD Transfer Pricing Guidelines), as amended from time to time.

6
 1. BACKGROUND

1.1. What is a Tax Convention?

A tax convention, or tax treaty as it is often called, is an official agreement between two countries on the
administration of taxation when the domestic tax laws of the two countries apply simultaneously to a
particular issue or taxpayer (e.g., when a taxpayer resident in one country derives income from sources in
the other country). Tax conventions provide a means of settling on a uniform basis the most common
problems that arise in the field of international double taxation.

Most tax conventions typically include the following broadly defined sections:

A preliminary section on the scope of the convention (e.g. covering taxes on income and capital)
and the definition of terms used.

The main part of the convention which settles the extent to which each of the two contracting
states may tax income (i.e. dependent upon different classes of income and capital and based
upon whether the state is a source state or residence state) and determines how international
juridical double taxation and international economic double taxation are to be eliminated.

A key section on special provisions such as the MAP article, which establishes the mutual
agreement procedures for eliminating double taxation and resolving conflicts of interpretation of
the convention.

Finally, a section on the implementing provisions such as the entry into force and termination
provisions of the convention.

The OECD Model Tax Convention is a model tax treaty which has been developed by the OECD. The
first version of the OECD Model Tax Convention was published in 1963, and the Model has been
frequently updated since then. More than 2000 bilateral tax treaties between countries of the world are
based on the OECD Model Tax Convention.

1.1.1. Purpose of a tax convention

The primary purpose of tax conventions is to eliminate double taxation and to prevent fiscal evasion. A tax
convention will also serve, in effect, to allocate tax revenues on transactions taking place between residents
of signatory countries. To these ends, a tax convention may resolve some common disputes and provide
rules determining:

the country in which a taxpayer is resident;

the treatment given to specific types of income;

the allowable rates of withholding tax on specific types of cross-border payments; and

the manner in which issues of taxation not in accordance with a tax convention are to be resolved.

7
1.1.2. Double taxation juridical and economic

International juridical double taxation can be defined as the imposition of income taxes in two (or more)
states on the same taxpayer in respect of the same income. Juridical double taxation can arise, for
example, where a resident of one country derives income from sources in the other country, and both
countries domestic tax legislation would tax that income. It can also arise where each country considers
the taxpayer to be resident in that country under domestic tax laws. Tax conventions reduce juridical
double taxation by allocating taxing rights between residence and source states on various categories of
income, typically by eliminating or limiting source country taxation or by requiring a residence state to
grant relief for source state taxation through a credit or exemption mechanism. For example, tax
conventions typically provide that one country may not tax the business profits earned by a resident of the
other country unless that resident has a taxable presence in the form of a permanent establishment in the
first country and the profits are attributable to that permanent establishment. Tax conventions also reduce
juridical double taxation by establishing criteria for determining an exclusive residency status for
taxpayers. The most common instances of juridical double taxation disputes are disputes over residency or
permanent establishment status, or over the characterisation of particular items of income and their
coverage under particular provisions of the convention.

Economic double taxation means the inclusion, by more than one states tax administration, of the same
income in the tax base when the income is in the hands of different taxpayers. Transfer pricing cases are
the best example of economic double taxation. For example, a tax administration adjusts a price charged
between related parties with a resulting tax charged on the additional income in the hands of one related
party, where tax has already been charged in another country on that same income in the hands of the other
related party.

Double taxation has a detrimental effect on the movements of capital, technology and persons and on the
exchange of goods and services. Thus tax conventions, when properly applied, remove the obstacles of
double taxation, thereby promoting the development and flow of international trade and investment.

1.2. What is a Mutual Agreement Procedure (MAP)?

The MAP article in tax conventions allows designated representatives (the competent authorities) from
the governments of the contracting states to interact with the intent to resolve international tax disputes.
These disputes involve cases of double taxation (juridical and economic) as well as inconsistencies in the
interpretation and application of a convention.

Since most probable occurrences of double taxation are dealt with automatically in tax conventions
through tax credits, exemptions, or the determination of taxing rights of the contacting states, the majority
of MAP cases are situations where the taxation of an individual or entity is unclear.

A noteworthy point is that the MAP article in most conventions does not compel competent authorities
actually to reach an agreement and resolve their tax disputes. They are obliged only to use their best
endeavours to reach an agreement. Unfortunately, on occasion competent authorities are unable to come to
an agreement. Reasons for unresolved double taxation range from restrictions imposed by domestic law on
the tax administrations ability to compromise to stalemates on economic issues such as valuations.

Some conventions currently include arbitration clauses in their MAP articles. However since these
procedures are new, there has been limited guidance and experience in their use. Even the EU Arbitration
Convention that first entered into force in 1995 has only had a few actual cases concluded. This lack of
experience may change in the near future if more cases line up for arbitration and the OECD considers

8
changes to the OECD Model Tax Convention to update guidance on supplementary dispute resolution
mechanisms for MAP.

1.2.1. Taxation of enterprises and individuals not in accordance with the Convention

The MAP article (Article 25 (Mutual Agreement Procedure) of the OECD Model Tax Convention) usually
sets out three general areas where two states endeavour to resolve their differences. The first area, covered
by paragraphs 1 and 2 of the OECD Model Tax Conventions MAP article, applies to situations where a
taxpayer believes that the actions of one or both of the contracting states has resulted or will result for him
in taxation not in accordance with the provisions of the Convention. This area is the most commonly
used and most often referred to part of the MAP article since it deals with most international taxation
disputes under tax treaties.

The taxpayer may request MAP assistance in these instances of taxation contrary to a convention, which in
most cases involve double taxation. Historically the majority of these cases have been issues of transfer
pricing where associated companies of a multinational enterprise group incurred economic double taxation
due to an adjustment to their income from intra-group transactions by one or more tax administrations.
Enterprises also request this kind of MAP assistance for non-transfer pricing cases, including disputes over
such issues as the existence of a permanent establishment, the amount of profits attributable to a permanent
establishment, or the application of a tax conventions withholding tax provisions to their income.

On occasion, individuals require MAP assistance for cases of taxation not in accordance with a tax
convention when specific articles of a convention do not resolve a situation clearly. The most common
occurrences for individuals are cases of dual residency (i.e., where an individual is considered a resident
for tax purposes of two countries, under their respective domestic laws). This can happen quite commonly,
because the domestic laws of the two countries may apply different tests for when residency is gained or
lost. As part of its object and purpose of avoiding double taxation, a tax treaty will only allow one of these
countries to treat that person as a resident for purposes of the treaty, and it therefore sets forth criteria to
determine which of the two countries the person has the greater connection with. That will then be treated
as the only country of residence when applying the treaty.

Paragraph 2 of Article 4 (Resident) in the OECD Model Tax Convention seeks to solve this problem by a
series of so-called tiebreaker tests, each serving to determine the single residence country for treaty
purposes if the previous tests have not resolved the issue. In the application of those tests, there may be
different views taken by the two countries, for example as to where the persons permanent home or
centre of vital interests is, and there might therefore be a need to resort to MAP to resolve differences
between the treaty partner countries on this point.

Moreover, even if both countries agree on how the tiebreaker tests operate, these tests do not always give a
result. The last of the tiebreaker tests tries to deal with this by providing that the competent authorities of
the Contracting States shall settle the question [that is - of individual residence for treaty purposes] by
mutual agreement. In other words if the issue is not solved by the other tiebreaker rules, it should be
solved by mutual agreement to help avoid double taxation.

1.2.2. Interpretation or application cases and double taxation in cases not otherwise provided for in a
convention

Most MAP articles provide for the possibility of MAP in two areas other than instances of taxation not in
accordance with the Convention. The other two areas, usually mentioned in a provision corresponding to
Article 25(3) of the OECD Model Tax Convention, involve questions of interpretation or application of
the Convention and the elimination of double taxation in cases not otherwise provided for in a convention.

9
Specifically, the first sentence of Article 25(3) typically authorises the competent authorities to try to
resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the
Convention. Under this provision, issues that require clarification or interpretation can be discussed and
agreed upon between the contracting states. These MAP discussions frequently relate to topics of a general
nature which concern, or may concern, a category of taxpayers rather than a specific taxpayers case.

The competent authorities may rely on this provision, for example, to reach agreement on the definition of
a term used in the convention or to agree upon procedures for granting the relief called for by a convention.
Situations where this provision has been usefully applied include, for example:

The U.S.-Japan Memorandum of Understanding of 27 December 2005 on the meaning of the

term investment bank in the Interest Article of their treaty;

The U.S.-Mexico Mutual Agreement of 22 December 2005 on the criteria and procedures to be
applied for purposes of granting treaty benefits to fiscally transparent entities;

Best Practice N1: Resolving and publishing issues of interpretation or application

Many issues of a general nature regarding the interpretation or application of a treaty could be successfully
addressed by competent authorities exercising their ability under the first sentence of Article 25(3) to
reach a mutual agreement on those issues.

Competent authorities could greatly improve the implementation of treaties by identifying and pursuing
opportunities to use this authority. Publishing any mutual agreements reached under Article 25(3) that
apply to all or a general category of taxpayers would improve guidance and proactively resolve future
disputes. Making such agreements public is therefore to be encouraged, unless the nature of the agreement
(e.g., certain compliance-related agreements involving procedures for criminal cases) means that its
publication would undermine its administrative goal.

The second sentence of Article 25(3) also typically authorises the competent authorities to consult
together for the elimination of double taxation in cases not provided for in the Convention. This authority
might allow the competent authorities to address, for example, a case where a third country resident has
permanent establishments in each of the two treaty countries, and they disagree about the amount of profits
attributable respectively to each of the two locations.

Best Practice N2: Robust use of Article 25(3) power to relieve double taxation

The authority granted by Article 25(3) to resolve cases of double taxation not provided for in the
Convention is closely linked to the fundamental purpose of the Convention, and competent authorities
could faithfully fulfill that purpose by their willingness to exercise that authority in relevant cases,
provided there is no domestic law impediment to doing so.

1.3. What/Who is a Competent Authority?

A competent authority is a term used in tax conventions to identify the position, person, or body to
whom issues can be addressed within the contracting state that is one of the two parties to a tax convention.

10
The competent authority for each country is typically identified in the Definitions article of the tax
convention (for example, under Article 3 (General Definitions) of the OECD Model Tax Convention). A
typical designation would be the Minister of Finance or his authorised representative or the Secretary of
the Treasury or his delegate. As will be described below, the authority is usually delegated within a tax
administration to a level that will administer a countrys MAP program.

Assistance by a competent authority is generally provided under the MAP article contained in a tax
convention. As well, competent authorities are often referenced in other articles of a convention and in
certain situations other articles may apply directly to allow for competent authority assistance on particular
questions (for example, under Article 9(2) (Associated Enterprises) or Article 4(2)(d) (Resident) of the
OECD Model Tax Convention).

1.3.1. Overall purpose of a competent authority

Generally speaking, a competent authority is committed to ensuring a good faith application of a tax
convention and endeavours to resolve competent authority requests in accordance with the applicable tax
convention, the OECDs Model Tax Convention and the OECD Transfer Pricing Guidelines.1 To fully
carry out this obligation, every effort should be made, including both competent authorities looking for
appropriate opportunities to compromise, to reach a satisfactory resolution of the issues involved.

Best Practice N3: Principled approach to resolution of cases

In the resolution of MAP cases, a competent authority should engage in discussions with other competent
authorities in a principled, fair, and objective manner, with each case being decided on its own merits and
not by reference to any balance of results in other cases. To the extent applicable, the Commentary to the
OECD Model Tax Convention and the OECD Transfer Pricing Guidelines are an appropriate basis for the
development of a principled approach.

As part of a principled approach to MAP cases, competent authorities should be consistent and reciprocal
in the positions they take and not change position on an issue from case to case, depending on which side
of the issue produces the most revenue. Although a principled approach is paramount, where an agreement
is not otherwise achievable, both competent authorities should look for appropriate opportunities for
compromise in order to eliminate double taxation.

To the extent possible, competent authorities who face significant recurring issues in their bilateral
relationship may wish to reach agreement on the consistent treatment of such issues.

In order to improve the MAP process, competent authorities ideally strive to resolve cases in a timely
manner and keep the taxpayer informed of the status of their request on an on-going basis. Once a decision
has been made or a solution agreed to by the competent authorities on a particular case, the taxpayer should
be advised of the decision in writing. It is understandable that a taxpayer may wish to know the basis of the
competent authority decision or agreement on its case and therefore should be afforded a satisfactory
explanation by the competent authorities. Each of these issues is dealt with in the relevant section of this
manual.

1. Other relevant sources such as other model tax conventions and commentaries may be useful as well,
depending upon the origin or basis of a particular tax convention.

11
 2. MAKING A MAP REQUEST

2.1. What is a MAP Request?

Where a person considers that the actions of one or both countries tax administrations result or will result
in taxation not in accordance with a tax convention, the person may request competent authority assistance
under the MAP article of the relevant tax convention. In most cases, such an action is an adjustment to, or a
formal written proposal to adjust, income related to an issue or transaction to which the person is a party.

Generally, taxpayers must approach the competent authority of their country of residence to request relief
under a tax convention. In cases where an adjustment is made that affects related parties in both
jurisdictions (e.g., a transfer pricing adjustment by one of the countries to the income or expense of one
company from a transaction entered into with a related company in the other country), it is often advisable
for each taxpayer to make a separate request for assistance to the competent authority of the country in
which it is resident. If the taxpayer is a non-resident of the relevant countries but is entitled to a treaty
benefit based on nationality in one of the countries (such as protection under a provision comparable to
Article 24(1) (Non-Discrimination) of the OECD Model Tax Convention), then a request may be made to
the country in which it is a national.

Some conventions are more flexible and allow a taxpayer to present a request to the competent authority of
either contracting state. Taxpayers should refer to the text of the particular MAP article to determine their
entitlement to present a request to a particular competent authority.

2.1.1. Typical scenarios requiring competent authority assistance

The following are some typical examples of taxation not in accordance with a tax convention where one
might make a MAP request:

A taxpayer is subject to additional tax in one country because of a transfer pricing adjustment to
the price of goods or services transferred to or from a related party in the other country. The
taxpayer may request that the competent authority of the first country reduce or withdraw the
adjustment and/or that the competent authority of the second country allow a corresponding
adjustment to the income of the related party to prevent economic double taxation.

A taxpayer is considered to be a resident of two treaty countries under each countrys domestic
law, and each country asserts that the taxpayer is a resident of its jurisdiction for purposes of the
tax convention. If unresolved, the taxpayer could be subject to taxation not in accordance with a
convention and therefore liable for tax on the same income in both countries. A request to the
competent authorities would initiate discussions between the competent authorities regarding the
proper application of the tiebreaker rules contained in the residency article of the convention. The
taxpayer should approach the competent authority of the country in which the taxpayer asserts
residency and in some cases where it is incorporated.

A withholding tax is levied beyond what is allowed within an applicable tax convention by one
treaty country on a payment to a resident of the other country. The taxpayer may request the

12
 competent authority of its country of residence to address the taxation not in accordance with the
tax convention with the competent authority of the other country.

A taxpayer operating a branch in one treaty country is subject to additional tax because of an
adjustment by that treaty country of the income allocated to the branch. The taxpayer may ask the
competent authority of its residence state to prevent double taxation by allowing an increased
foreign tax credit or exemption or by seeking the other competent authoritys agreement to give
relief from the adjustment.

A taxpayer subject to tax as a resident in one country on income, including income from carrying
on a business in the other treaty country, is taxed in that other treaty country on the business
income earned there, despite not having a permanent establishment in that country under the tax
convention. The taxpayer may request the competent authority of its country of residence to
address the issue of taxation not in accordance with the tax convention with the competent
authority of the other country.

A taxpayer is uncertain whether the convention covers a specific item of income, or is unsure of
the characterisation or classification of the item related to a cross-border issue; the taxpayer may
approach the competent authority for clarification.

In all of these situations a taxpayer may generally obtain assistance or relief via the MAP process.

In order for a taxpayer to seek assistance from its competent authority in cases of potential taxation not in
accordance with the convention, it is generally sufficient if the resident establishes that such taxation is
probable. In other words, an actual adjustment is not necessary and taxpayers may contact the competent
authority to notify of an impending adjustment. Establishing the probability of inappropriate taxation does
not mean that the taxpayer must prove this to a 51 percent probability, and in borderline cases it is
appropriate for the competent authority to give the benefit of the doubt to the taxpayer for purposes of
accepting the request. Further guidance on the probability of inappropriate taxation and the extent required
to submit a request is provided in Paragraph 12 of the Commentary on Article 25 of the OECD Model Tax
Convention.

A resident may also contact its competent authority for clarification as to the interpretation and application
of a convention, as described in paragraph 3 of the MAP article. In such cases, the conditions of paragraph
1 of the MAP article relating to the need to establish probability of inappropriate taxation do not need to be
met.

2.2. How to Make a Request for Competent Authority Assistance

In almost all cases, MAP cases are initiated through a taxpayers request for competent authority
assistance. Essentially the request is the means by which a taxpayer informs or notifies a competent
authority that it believes there is an action by one of the treaty countries involved which has resulted or will
result in taxation not in accordance with the relevant tax convention.

Some countries publish specific guidance on how to make a MAP request and how they conduct their
MAP cases. The MAP country profiles of OECD Member countries published on the OECD website
include references to such guidance and should be consulted by taxpayers considering making a MAP
request.

13
Best Practice N4: Transparency and simplicity of procedures for accessing and using the MAP

Competent authorities should, where appropriate, formulate and publicise domestic rules, guidelines and
procedures concerning use of the MAP, and OECD Member countries should ensure that their country
profiles on the OECD website including references to this information are kept up to date.

Notwithstanding the amount of information required to deal with some MAP cases and the necessity of
some procedures, formalities involved in instituting and operating the MAP should be kept to a minimum
and any unnecessary formalities eliminated.

Often, competent authority cases are fact-intensive, particularly transfer pricing cases, and therefore
usually require considerable information. However, the amount of information required should be
balanced with the complexity of the issues; it should recognise the burden such requests for information
place on a taxpayer, and it should be specific to the issue being addressed.

2.2.1. General format of a MAP request

In cases where there are no prescribed forms for requesting competent authority assistance, the taxpayer
should provide the following relevant information, if applicable:

1. the name, address, and taxpayer identification number of the taxpayer;

2. for transfer pricing cases, the name, address and, if possible, the taxpayer identification number of
any related foreign taxpayer involved;

3. the name of the foreign tax administration involved and if possible identification of the regional
or local tax administration office that has made, or is proposing to make, the adjustment (if
relevant);

4. the tax convention article(s) that the taxpayer asserts is not being correctly applied, and the
taxpayers interpretation of the application of the article;

5. the taxation years or periods involved;

6. the relationship, situation, or structure of the transactions, issues, or related parties involved
(advising of any changes in these matters that occur after the request has been filed would be
helpful);

7. a summary of the facts and an analysis of the issues for which competent authority assistance is
requested, including any specific issues raised by the tax administrations affecting the taxpayer
and the related amounts (in both currencies and supported by calculations, if applicable);

8. for transfer pricing cases, documentation as described in domestic legislation of the taxpayers
state of residence, if available (where documentation is inordinately voluminous, a description of
the documentation prepared in connection with the transactions which are the subject of the MAP
request may be acceptable);

9. a copy of any other relevant competent authority request and the associated documents filed, or to
be filed, with the competent authority of the other contracting state, including copies of
correspondence from the other tax administration, copies of briefs, objections, etc., submitted in

14
 response to the action or proposed action of another tax administration (if applicable, translated
copies are helpful and where documentation is voluminous, a description of the documentation
may be acceptable);

10. an indication of whether the taxpayer or a predecessor has made a prior request to the competent
authority of either contracting state on the same or related issue;

11. a schedule of the time limitations in each jurisdiction (domestic as well as tax convention time
limits) in respect of the years for which relief is sought (in cases of multiple taxpayers, a schedule
for each);

12. a statement indicating whether the taxpayer has filed a notice of objection, notice of appeal,
refund claim, or comparable document in either of the relevant jurisdictions;

13. where the request for competent authority assistance involves issues that are currently or were
previously considered by the tax authorities of either contracting state as part of an advance
pricing arrangement, ruling, or similar proceedings, a statement to that effect;

14. if consent has not already been provided for a person to act as an authorized representative, a
signed statement that a representative is authorized to act for a taxpayer in making the request;

15. any other facts that the taxpayer may consider relevant;

16. a copy of any settlement or agreement reached with the other jurisdiction which may affect the
MAP process; and

17. the taxpayers views on any possible bases on which to resolve the issues.

The request should generally be signed by the taxpayer, or by an authorized person on behalf of the
taxpayer, confirming the accuracy and completeness of the facts and information presented in the request.
Alternatively, an accompanying document, stating as much, may be provided within a reasonable period of
time after the submission.

Typically there are no fees charged by the competent authorities for MAP cases. There may be fees
associated with Advance Pricing Arrangement programs (discussed elsewhere in the manual) or for the
rare occurrences of using independent experts or mediators.

15
Best Practice N5: Providing complete, accurate, and timely information to the competent
authorities

The completeness and accuracy of the information included in a request has a direct impact on the time
required for the competent authorities to carry out the MAP process. To deal with a case in an expeditious
manner, a competent authority needs sufficient details to analyse, understand, and ultimately prepare to
discuss a position with both the taxpayer and other competent authority.

Ensuring both competent authorities have the same information at approximately the same time will
facilitate a common understanding of the facts and will undoubtedly encourage earlier resolution.
Therefore, copying the other competent authority on both submissions of information and subsequent
requests will reduce the risk of misunderstandings. If two competent authorities receive conflicting
information, the outcome will likely be a delay in the MAP process until the parties can agree upon the
information or facts presented.

Certain competent authorities may delay acceptance of a case where a taxpayer has failed to provide
complete and accurate information or may deny competent authority assistance where the taxpayer has
misrepresented facts.

Best Practice N6: Allowing electronic submissions

For the benefit of the tax administration and taxpayer, electronic correspondence and copies of a competent
authority submission are often helpful in encouraging simultaneous delivery of information to the two
competent authorities. Electronic copies may also ease the burden of submission for the taxpayer while
facilitating the administration of a request by the competent authority. Some governments may not
currently accept this medium of submission, while other governments may with a disclaimer.

2.2.2. Use of information within MAP process

All information obtained or generated during a MAP process is fully protected by the confidentiality
provisions of the applicable tax convention, specifically the Exchange of Information article (Article 26 of
the OECD Model Tax Convention) and in almost all cases by domestic legislation, as would be the case for
domestic issues.

In addition, a competent authority should recognize that the disclosure of sensitive or confidential
information such as a trade secret could harm a taxpayers competitive position, and should ensure that all
measures are taken to protect such information.

16
 3. HOW MAP WORKS

3.1. The Basics

Where a request is made to a competent authority under the MAP article of a tax convention, the
competent authority should first, if the request appears to be justified, attempt to resolve the matter
unilaterally.

For example, in a case involving a taxpayer assertion that the action of one or both contracting states
results in taxation contrary to the convention, if the competent authority considers that the request for relief
is justified and this relief is within the bounds of the tax convention, it could provide the relief without
consulting the other competent authority. If the competent authority is not able itself to arrive at a
satisfactory solution, it will engage the other competent authority and endeavour to resolve the matter by
mutual agreement.

Once notified of a case, the competent authorities discuss the merits (and in some cases deficiencies) of the
case or issue usually based upon a position developed by one of the competent authorities. These
discussions can take place via correspondence, telephone, videoconference, or in person. Typically after a
thorough discussion, which may involve a formal rebuttal to a position paper, the competent authorities in
most cases come to an agreement on a mutually acceptable resolution of the case.

In double taxation cases, the agreement between competent authorities will outline to what extent each
jurisdiction will provide relief and how the relief will be provided. Details such as method of relief (e.g.
adjustment to income, credit, exemption, etc.), repatriation, and timing are usually recorded as a summary
record followed by an exchange of letters between the competent authorities, which formalizes the
agreement.

In such cases, if the other competent authority (the competent authority in the jurisdiction where the issue
or adjustment did not arise) agrees to provide all or some correlative relief, then in most cases the relief is
provided through a corresponding adjustment. The term corresponding adjustment is used to describe
an adjustment made by a treaty partner in order to relieve double taxation caused by an adjustment initiated
by the first mentioned tax administration.

Once the agreement between the competent authorities has been finalized, the taxpayer is notified in
writing of the decision and is provided with an explanation of the result. Upon the acceptance by the
taxpayer, written confirmation of the agreement is exchanged between the administrations and provided to
the taxpayer. Soon afterwards the results are processed by the tax administration and relief is obtained.

3.2. Acceptability of a MAP Request

While the suggested general format of a MAP request (above) may seem extensive, competent authorities
normally seek the following key elements in considering a MAP request:

there is an applicable tax convention covering the issue or transaction;

17
 the person considers that the actions of one or both countries results or will result in taxation not
in accordance with the provisions of the tax convention;

the competent authority is notified within the time limits specified in the applicable tax
convention; and

the issue or objection seems to be justified.

Assuming those requirements are met, taxpayers are entitled to initiate a competent authority request even
before an audit is completed or they have received formal notification of an assessment. Often, however,
competent authorities require that an adjustment to income or issue be confirmed by the conclusion of the
audit and a complete request be submitted before committing resources to the analysis or evaluation of a
MAP process. This may be particularly true where the competent authority feels unable to evaluate the
case before the audit function has completed the factual development and related analysis. Although this
may delay the work by a competent authority on processing an individual MAP case, it should not prevent
notification or presentation of a case to a competent authority or in any way obstruct a persons access to
MAP.

Best Practice N7: Allowing early resolution of cases

A MAP application process that is capable of being initiated at an early stage of a potential dispute,
perhaps in conjunction with a flexible initial review process, may allow the competent authority to help in
the identification of pragmatic alternatives that may become apparent before either the tax administration
or the taxpayer becomes overly burdened with unnecessary costs or excessive preparation of a case.

Notwithstanding the obvious benefits of an early resolution, many competent authorities prefer to limit
their early involvement (prior to the conclusion of the audit), giving due consideration to maintaining a
level of independence as outlined in Best Practice No23: Independence and funding of a competent
authority, to making suggestions that relate to general policy and process issues, rather than discussing the
specific details of a case which their office may be required to review in the future. For example, these
suggestions could address issues regarding the general viability of an adjustment as it relates to time
limitations or proposals for an Advance Pricing Arrangement or simultaneous audit.

It is advisable that taxpayers review the specific countrys guidance on MAP and the relevant convention
for further details or consult with the competent authority directly.

It is common for competent authorities to notify taxpayers in writing whether their request for competent
authority assistance has been accepted or declined within a reasonable period of time (30 days is suggested
as reasonable). Where a request is declined, it is constructive for the tax administrations to provide reasons
for the decision.

In addition, where the decision to accept or deny a MAP request is borderline (for example, where there is
a question as to whether notification/presentation of a case to the competent authority was made within the
specified time limits of a convention), it is important that the competent authorities bear in mind the spirit
and objectives of the convention and also that the MAP process is designed to be inclusive as opposed to
limiting participation. This is especially true in cases where the issue of probability of taxation arises or
cases where time limits exclude a person from competent authority assistance.

18
3.2.1. Time limits for requesting access to MAP

Tax conventions frequently include one or more time limits relevant to MAP requests. One type of limit is
that found in Article 25(1) of the OECD Model Tax Convention. It provides that a case of taxation not in
accordance with the Convention must be presented to the competent authority of the taxpayers
residence country within three years from the first notification of the action resulting in taxation not in
accordance with the provisions of the Convention. For most tax administrations this generally means
three years from the date of the notice of adjustment. (Further guidance on the starting point of the
three-year time limit in the OECD Model Tax Convention is available in the Commentary to Article 25.)
However, there are many variations of time limits in various countries treaty networks and therefore it
would be prudent to verify the specifics for any one particular case. If the taxpayer does not meet this
timeliness requirement for presenting its case to the competent authority, it may be denied access to the
MAP.

Best Practice N8: Earlier notification of a potential case

It is advisable for taxpayers to consider filing a MAP request and/or notifying the appropriate competent
authorities of a potential MAP case as soon as it appears likely that an issue will result in taxation contrary
to the applicable convention. This is the point when it becomes evident that there is a probability, and not
just the possibility, that taxation not in accordance with the applicable convention will result (see Sections
2.1.1 Typical scenarios requiring competent authority assistance, and 2.2 How to Make a Request for
Competent Authority Assistance).

Notifying or presenting a case in advance of a formal action giving rise to inappropriate taxation will help
to ensure a conventions time limits for requesting MAP or notifying competent authorities are met.

The general purpose of time limits within a convention is to prevent tax administrations from having to
make or react to adjustments many years after the taxable period at issue. Such late consideration of
adjustments may be difficult since the information may very well be stale or no longer available. Records,
information, and details regarding an issue or transaction may be very difficult to come by, especially in
the case of a country that is unaware of the issue until long after the taxable period at issue.

19
Best Practice N9: Liberal interpretation of time limits and advising of treaty rights

Balancing a tax administrations need for reasonable time limitations with the necessity of providing MAP
assistance to those entitled to treaty benefits can be a difficult issue. Keeping in mind the spirit and
objectives of the convention, however, taxpayers should not be unduly prevented from obtaining assistance
via MAP due to overly strict interpretations of a conventions time limitation for requesting MAP. Simply
put, taxpayers should receive the benefit of the doubt in borderline cases.

While the onus for making a timely request in order to preserve access to the MAP may rest with the
taxpayer and taxpayers should take all reasonable steps to ensure that time limits do not expire, it would be
helpful for a tax administration making an adjustment to advise the taxpayer of their rights under the
applicable convention, including information about any time limitations in the convention for initiating
MAP. This written notice or advice could be included at the time of formal notification of a proposed
adjustment and could include general guidance on the availability of MAP and how to go about protecting
the availability of access to this mechanism. Some administrations have implemented this best practice of
advising taxpayers of both their domestic and convention rights and obligations at the time of the proposed
adjustment, with successful feedback and results.

Domestic law provisions, including time limitations, should not be an impediment to access to the MAP
unless they are reflected in the terms of the convention itself. A competent authority relying upon a
domestic law impediment as the reason for not allowing a taxpayer to initiate MAP should inform the other
competent authority of this and duly explain the legal basis of its position. See Section 4. MAP and
domestic law for further guidance on the interaction of domestic law and the MAP process.

3.2.2. Time limits for implementation of relief where treaties deviate from the OECD Model Tax
Convention

Although the OECD Model Tax Convention states that a MAP agreement shall be implemented
notwithstanding domestic time limits of the contracting states, a number of countries have reserved their
position on this point. Thus, some conventions do not have any wording similar to the second sentence of
Article 25(2) of the OECD Model Tax Convention; while other conventions provide explicitly that a
country is not required to implement a MAP agreement in contravention of domestic law limitations if that
countrys competent authority has not received notification that a MAP case exists within a specified
period of time (e.g. within a specified number of years from the end of the taxable year to which the case
relates).

Advance notice of time limits, as mentioned above in Best Practice N9: Liberal interpretation of time
limits & advising of treaty rights, would be especially useful in cases where a convention differs from the
OECD Model Tax Convention. In these instances, the tax administration could usefully inform a taxpayer
of a need to notify the other competent authority of an adjustment within a specified time in order to
preserve the possibility of MAP-based relief from that other country.

Nevertheless, taxpayers should be cognizant that their failure to take timely protective measures to prevent
the loss of rights because of the expiration of treaty-based or domestic law time limitations in the case of
conventions that deviate from the wording of the second sentence of Article 25(2) of the OECD Model Tax
Convention may undermine the effectiveness of the MAP to provide relief from taxation not in accordance
with the convention. Accordingly, taxpayers should take all reasonable steps to ensure that such time
limitations do not expire without appropriate protective measures on their part.

20
In those specific cases where a convention deviates from the OECD Model Tax Convention and contains
an explicit provision specifying that a competent authority must receive notification of a MAP case within
a specific time period in order to be obligated to implement any relief through the MAP, it would be
contrary to the spirit of the MAP for this requirement to be applied in an overly strict manner. For
example, even though competent authorities may expect a notification to contain specific details of tax
not in accordance with a convention such as identification of the issue, amounts of the adjustment, and
calculations of the tax at issue, deadlines for these particular requirements should not be used to exclude a
person unreasonably from obtaining relief through a MAP agreement which can be implemented by both
countries. This is especially true in cases where a tax administration is delayed in presenting these details
to the taxpayer. Furthermore, if a notification is considered improperly filed and therefore notification
requirements have not been met, it would be appropriate for a competent authority to advise the taxpayer
of the reasons and how the situation may be rectified.

Where a countrys tax administration has failed to advise a taxpayer of the likelihood of an adjustment
until after the expiration of such a time limit explicitly set forth under a convention for notifying the other
countrys competent authority of a MAP case, and the result is that the taxpayer would be barred from
obtaining relief from the other country through implementation of a MAP agreement, the first countrys
competent authority should, in most cases, be prepared to withdraw its countrys adjustment unilaterally in
order to prevent double taxation.

Best Practice N10: Avoiding exclusion from MAP relief due to late adjustments or late notification

When an adjustment has the potential to give rise to a MAP case, tax authorities should notify the taxpayer
as soon as possible of their intention to make the adjustment, especially in cases where the provisions in
the MAP article of the applicable convention for presentation/notification of a case and implementation of
a result differ from those of the OECD Model Tax Convention. This notice should not only advise the
taxpayer of any requirements for initiating MAP (as mentioned in Best Practice N9) but also of
requirements to obtaining relief via MAP, such as notifying the other countrys competent authority of the
adjustment where such timely notification is necessary to preserve the right to MAP-based relief from that
other country.

Double taxation may arise if one country makes a late adjustment and the other country is unable or
unwilling to grant relief through MAP because of time limitations in the treaty or in its domestic law.
Where the obligation of implementing mutual agreements notwithstanding domestic time limits is
explicitly stated in the convention, a good faith application of the convention requires adherence to that
obligation.

In general, countries that have conventions that deviate from the wording of the second sentence of Article
25(2) of the OECD Model Tax Convention should try to ensure that their audit practices do not unduly
create the risk of late adjustments for which taxpayers may not be able to obtain MAP relief. For their part,
taxpayers should take all reasonable steps to ensure that time limitations in the other country do not expire
without appropriate protective measures on their part.

Where an adjustment is proposed after the expiration of a time limitation specified in the bilateral treaty
that eliminates a taxpayers opportunity to obtain relief through MAP from the other country, the country
making the adjustment may be prepared to withdraw its adjustment unilaterally to prevent double taxation,
except in cases where the adjustment relates to an act of fraud, wilful default, or gross negligence.

21
3.2.3. Tax avoidance and MAP

Some competent authorities have had a tendency not to discuss a case where an adjustment is based upon
anti-avoidance provisions of their countrys domestic laws. This means, generally, that if a competent
authority were to consider a request for assistance in such a case, it would limit itself to forwarding the
case to the other competent authority for any relief that the foreign competent authority may provide at the
latters discretion.

It may be helpful to generally review whether domestic anti-avoidance laws conflict with a countrys
obligations under the provisions of a tax convention. Of course this issue is very specific to the domestic
laws of each country and any one particular tax convention. Some conventions specifically allow for
domestic anti-avoidance provisions and therefore application of such provisions in a particular case may
not necessarily be contrary to the convention. However, even under such conventions, the mere assertion
that a domestic anti-avoidance provision may apply to a particular case is not enough to justify excluding
from MAP the question of whether there is or may be taxation in contravention of the convention.

In other situations where there isnt an explicit exception, one is left to look at whether a particular
domestic anti-avoidance law or policy operates consistently with the convention and in particular,
whether there is clear evidence that the convention is being abused, as described in OECD Model Tax
Conventions Commentary on Article 1. If it can be determined that the application of an anti-avoidance
provision creates taxation not in accordance with the provisions of a convention, then in the absence of an
explicit exception, the convention should override the domestic anti-avoidance law. Even in the absence of
such a determination, however, countries should specifically observe the specific obligations enshrined in
their tax treaties to relieve double taxation as long as there is no clear evidence that the tax treaties are
being abused. In the absence of a special provision, there is no general rule denying perceived abusive
situations going to MAP.

The Commentary (with proposed revisions) to the OECD Model Tax Convention provides more guidance
on conflicts between conventions and domestic law and deals with this issue further.

Best Practice N11: Consideration of MAP assistance for cases described as tax avoidance

Given the wide scope of the meaning or interpretation of the term tax avoidance in some countries, it
would be reasonable for competent authorities of both contracting states to, at a minimum, consider
granting assistance in MAP cases where an action taken by a tax administration is done under anti-
avoidance provisions, and the requirements of Article 25(1) are met. In the absence of a special provision,
there is no general rule denying access to MAP in the case of perceived abusive situations. Even where a
special provision exists, the mere assertion that a domestic anti-avoidance provision may apply to a
particular case is not enough to justify excluding from MAP the question of whether there is or may be
taxation in contravention of the convention.

Moreover, if the use of an anti-avoidance provision is supplementary or secondary to another domestic law
provision, or of questionable basis, consideration should be given to the adverse and cumulative nature of
the results of double taxation in combination with any anti-avoidance penalties and interest. Accordingly,
the outright denial of competent authority assistance may have an unintended and added punitive effect.

In cases where the authorised application of domestic anti-avoidance laws prevents relief by one
countrys competent authority, this should not prevent the other competent authority from providing any
relief that the latter considers appropriate.

22
3.2.4. Other potential barriers to MAP

There are sometimes other issues that some competent authorities have decided not to consider in MAP,
notwithstanding the obligation under the MAP article to consider all justified objections of the taxpayer
to taxation not in accordance with the convention. As an example, some competent authorities may not
provide relief in the form of a notional expense for a notional income adjustment raised by a treaty partner.
Other competent authorities may decline to engage in MAP if a taxpayers situation presents an issue on
which their tax administrations wish to obtain a judicial precedent. These types of exceptions to the
availability of MAP tend to undermine the spirit and purpose of the MAP process. The recognised general
principle of international law is that domestic law, even domestic constitutional law, does not justify a
failure to meet treaty obligations. It follows that countries should not, without due deliberation, take the
view that a matter is not eligible for MAP consideration.

Best Practice N12: Countries eliminate or minimize exceptions to MAP

It would be considered in the best interest of all stakeholders and would better reflect the spirit and purpose
of the tax conventions for countries to rectify inconsistencies between domestic laws or policies and their
network of tax conventions by eliminating issues that they exclude from MAP considerations. At the very
least, these countries should publicise the exclusion so that taxpayers and other tax administrations are
aware of the MAP exceptions.

A competent authority relying upon a domestic law or policy impediment as the reason for not allowing a
MAP to be initiated by a taxpayer should inform the other competent authority of this and duly explain the
legal basis of its position.

3.3. Role of the Taxpayer

3.3.1. Providing information to the competent authorities

Even though the taxpayer is excluded from parts of the MAP process, its participation and effort will have
a considerable effect on the time it takes to complete a case. In the long-term, the taxpayer would be well
served by providing information to the competent authorities in a timely manner. Once a competent
authority request has been accepted, the taxpayer can best help itself by supplying the competent authority
with complete and accurate information required to resolve the case. The taxpayer has every interest and
advantage in keeping the competent authorities as up-to-date as possible on all material changes in the
information or documentation previously submitted as part of, or in connection with, a request, as well as
new information or documentation relevant to the issues under consideration.

Without proper information and documentation, competent authorities may be unable to resolve disputes
expeditiously and the risk of unrelieved double taxation increases. As mentioned in the Best Practice N5:
Providing complete, accurate, and timely information to the competent authorities section, where a request
also involves a related foreign taxpayer making a request to a foreign competent authority, it would be
constructive and advantageous for the taxpayers to ensure that the same information is provided to both
competent authorities at the same time. It is particularly important to make sure that the two competent
authorities do not receive conflicting information from the taxpayer or its related party, so all submissions
to each competent authority should be carefully reviewed for accuracy and consistency by the taxpayer and
any foreign related party.

23
3.3.2. Contributing to the MAP discussions

MAP discussions between competent authorities are a government-to-government process in which there is
generally no direct taxpayer involvement. Therefore, taxpayer involvement in the MAP is generally limited
to presenting the taxpayers views and assisting in the fact-finding without participating in the competent
authority-to-competent authority discussions. However, taxpayers may be invited to make a presentation
before the competent authorities, where appropriate, to ensure a common understanding of the facts of a
particular case.

It is generally desirable for taxpayers to be given every reasonable opportunity to present the relevant facts
and arguments to the competent authorities both in writing and orally.

Best Practice N13: Taxpayer presentations to competent authorities

Particularly on fact-intensive, unusual, or complex cases it may be a valuable exercise to have the taxpayer
make a presentation to both competent authorities at the same time, typically prior to the commencement
of discussions. The purpose of the presentation would be to clarify issues, transactions, etc., and the
presentation is typically limited to this type of information. It does not imply taxpayer involvement in the
actual negotiations between competent authorities. Such a presentation would normally be pursuant to a
mutual agreement by the competent authorities. Whilst such presentations should not be viewed as
standard practice for all cases and should not be a substitute for taxpayer cooperation at the examination
level, competent authorities are encouraged to consider inviting such presentations in appropriate cases,
time and resources permitting.

In addition, experience has shown that proposals for resolution from the taxpayer can sometimes be
valuable and constructive. If a proposal for resolution is included, however, there can be the risk that one
competent authority may unduly rely upon this position as the taxpayers position and therefore be
unwilling to explore in good faith other options. All parties should bear in mind that the ultimate goal is
resolution of the case, which may or may not have elements of a taxpayers proposal.

3.3.3. Interaction between taxpayers and competent authorities

An expeditious MAP process is beneficial to all stakeholders. Consequently, making all relevant
documentation and information accessible to a competent authority, as soon as it is available, will assist in
the smooth and efficient operation of the MAP process. Likewise, competent authorities ensuring that
taxpayers are well aware of the status of their case will foster a more productive relationship with
taxpayers and will help to avoid misunderstandings regarding the acceptance, stage of work, or completion
of their case.

Co-operation among the stakeholders involved in the MAP process is crucial to a responsive and well
functioning MAP program. The provision of information and assistance when requested will promote
transparency and consistency. Thus, cooperation amongst these stakeholders or parties (taxpayers and
competent authorities) to the MAP process is paramount.

A partys failure to co-operate during any part of the competent authority process may have direct
consequences on the length of time to obtain relief and whether such relief can ultimately be provided
under the MAP. For instance, a competent authority may request additional information beyond that which
was requested during an audit, or it may request information that was requested but not provided during an
audit, still keeping in mind the purpose of this information is to resolve double taxation. Or perhaps a
taxpayers request to generally review or discuss a competent authoritys position, prior to its formal

24
discussion with the other competent authority, goes unanswered. In either of these cases, the lack of
cooperation may create undue delays thereby preventing the completion of a case in a reasonable period of
time.

Where the failure to provide information within a reasonable time hinders a partys ability to perform its
respective duties related to MAP in an efficient and effective manner, it may lead to disengagement,
delays, or ultimately double taxation or taxation not in accordance with a tax convention.

Best Practice N14: Cooperation and transparency

Governments and taxpayers will benefit from a cooperative and fully transparent process. The timely
provision of requested information, both from taxpayers and between competent authorities, is essential to
enable competent authorities to reach an equitable and expeditious conclusion.

For taxpayers, providing the same documentation package to both competent authorities with all relevant
details will go a long way in advancing the competent authorities common understanding of the facts.

For tax administrations, timely and frequent communication with the taxpayer regarding the status or
issues of a case will increase transparency in the process and help to ensure a clearer understanding of the
case usually resulting in a faster and more appropriate resolution. Whilst giving due respect to the
confidentiality of government-to-government communications and without allowing taxpayers to become
involved in the actual MAP negotiations, competent authorities are encouraged to consider obtaining input
from the taxpayer on factual and legal issues that may arise in the course of the MAP.

3.4 Analysis and Evaluation by the Competent Authorities

Competent authorities customarily commence their evaluation of a MAP case upon receiving a detailed
submission from the taxpayer. This is the beginning of the second stage of the MAP process, as outlined in
the timeline in Annex 1. To encourage consistency and move forward in this stage of the process,
competent authorities may wish to ensure that they are both dealing with the same information.

Since a misunderstanding of, or disagreement over, the facts of a case is one of the primary reasons for
delays or disputes in MAP cases, a common understanding of the facts is vital to a smoothly running MAP
case. If both competent authorities can agree upon the facts of a case, then a MAP case often comes down
to international tax principles, policy concerns, and choosing an appropriate result upon which all
stakeholders can agree.

Involvement of the taxpayer at this stage may be beneficial to both competent authorities for the purposes
of clarifying any outstanding issues regarding the taxpayers particular situation, relationships,
environment, etc. as outlined in Best Practice N13: Taxpayer presentations to competent authorities.

A competent authoritys view or position on an issue or transaction is the principal outcome of the analysis
and evaluation of a case. In order for this position to be well founded and conveyed in a comprehensible
manner, competent authorities should be prepared to explain in sufficient detail the nature of the
adjustment and to a lesser extent the applicability of domestic law. Most important however, are the laws
and principles that the two jurisdictions have in common, namely: the tax convention between the two
contracting states; any commentary, technical explanations, or specific country guidance related to that
convention; and finally published guidance by the OECD. All of these elements should be taken into
account in the analysis and evaluation of an issue.

25
In many MAP cases the overriding principles that both competent authorities adhere to, beyond the
applicable tax convention, are found in OECD guidance such as the OECD Model Tax Convention,
including its Commentary, and the OECD Transfer Pricing Guidelines.

3.4.1. Position papers

To achieve timely resolution and to facilitate meaningful discussions, it is recommended that the
competent authority consider the preparation and transmission of a position paper as a matter of priority.
Sufficient detail in a position paper will enable the other competent authority to understand the issue and
determine the best course of action, in other words the best method to relieve double taxation or resolve the
issue. The type of information and level of detail suggested for the position paper are set out below.

The country that has taken an action that led to the taxation which is alleged to be contrary to a convention
routinely provides a position paper (regardless of whether that is the competent authority to which the
taxpayer has made its request). To facilitate consideration of a MAP case, a position paper provided on a
timely basis and containing all the necessary information, as listed below, for the relieving competent
authority would be helpful.

a) Legal name and address and taxpayer identification number of the person requesting assistance,
its related persons in the other country, if applicable, and the basis for determining the
association;

b) The contact details of the competent authority official in charge of the case;

c) Overview of the issue, transactions, business, and basis for adjustment;

d) Applicable taxation years;

e) Amount of income and tax adjusted for each taxable year, if applicable;

f) Summary of relevant information from the original tax return;

g) Description of the exact nature of the issue or adjustment and the relevant domestic laws and
treaty articles;

h) If relevant, calculation with supporting data (may include financial and economic data and
reports relied upon and explanatory narratives as well as taxpayer documents and records
where relevant and appropriate);

In transfer pricing cases, the following additional information would be helpful:

i) Outline of comparable transactions and methods for adjusting differences;

j) Description of the methodology employed for the adjustment;

k) An explanation of the appropriateness of the transfer pricing methodology employed for the
adjustment (i.e. an explanation why it believes the adjustment achieves an arm's length
outcome; identification of tested party, if applicable; industry and functional analysis, if a
relevant study is not already included elsewhere in the taxpayers submission).

In response to a position paper, the other competent authority naturally reviews the case and then provides
its views. In cases where there is disagreement or clarification is required, a rebuttal position or a request

26
for more information may be warranted. This exchange of positions and evaluation by the competent
authorities is best undertaken as a matter of priority. To enable the competent authorities to identify the
areas of disagreement and to understand the position of the responding competent authority, a rebuttal or
response paper could include the following:

a) Indication of whether a view, proposed solution, or relief proposed in the initial position paper
can be accepted;

b) Indication of the areas or issues where the competent authorities are in agreement or
disagreement;

c) Requests for additional information and explanations necessary to clarify particular issues;

d) Presentation of other or additional information considered pertinent to the case, but not raised
in the initial position paper; and

e) Submission of proposals or views to resolve the issue.

If the competent authorities involved intend to hold a face-to face meeting, some of the issues listed above
may then be addressed at the meeting. In such a case, it would be beneficial if a response to an initial
position paper includes item e) above.

3.5. Interaction between Competent Authorities

Taxpayers, tax administrations, and the international tax community in general are all committed to a
streamlined and effective MAP process. For their part, tax administrations can attempt to continually
enhance communication and coordination between competent authorities.

Case analysts or competent authority analysts, who are charged with the analysis and development of a
position as well as the day-to-day management of a case, are encouraged to consult with their counterparts
to discuss or clarify specific issues throughout the MAP process. All such discussions between analysts are
best documented to provide a historical summary if the file must change hands within the competent
authority office.

Although the competent authorities need not exchange copies of all documents provided by the taxpayer,
since doing so may simply replicate the documents already submitted by the taxpayer, an appropriate
mechanism could be arranged to corroborate the completeness and details of documents and information
supplied by the taxpayers.

Competent authorities often discuss MAP case via means such as letters, facsimiles, e-mail, telephone, and
face-to-face conferences. Although it is recognized that face-to-face conferences are often the most
productive means by which to discuss a MAP case, the competent authorities are encouraged to determine
the most appropriate means of communication to best resolve a case in an expeditious but practical
manner. It is also considered beneficial, if face-to-face conferences are conducted, to involve the specific
competent authority case analysts whenever possible and practical. In addition, in order to achieve a
timely resolution of a MAP case, the competent authority staff with the authority to resolve a case should
be present at the time of discussion.

27
Best Practice N15: Face-to-face meetings between competent authorities

Face-to-face meetings may allow for a more open discussion and collegial approach and perhaps a more
relaxed environment. A more unified approach towards problem solving may in turn lead to win-win
solutions in the resolution of MAP cases.

One other benefit of meeting in person is usually it triggers a milestone event in the timeline of any one
particular case that often causes a level of activity and progress. In other words, meeting in person usually
helps advance a case. Preparation prior to a meeting and the generation of follow up plans afterwards
generally produces results.

Conference calls can be easily postponed, deadlines can get pushed back, but meetings once committed to
and arranged can be difficult to set aside.

Considering the diverse cultures and the proliferation of MAP cases, it is recognized that in some cases
interpreters may be required to help facilitate face-to-face meetings.

3.5.1. Problematic cases

The early identification of problematic cases is crucial to concluding these cases in a reasonable period of
time. Once identified, a specific case plan that addresses the critical issues can be developed and
monitored. Allocating sufficient resources and experienced personnel to the most contentious cases may
also improve the results in these cases.

Although these actions can be carried out in one country, it is best if both competent authorities approach
this as a joint effort. A bilateral focus, with appropriate oversight can have a very positive effect on the
outcome of MAP cases.

Alternative methods other than the traditional MAP process have been considered and tested as of late.
Arbitration, mediation, and the use of experts all bring specific attributes to the process. Expertise in the
specific area of the taxpayers business (e.g. banking, pharmaceutical, etc.), in tax law, economics, etc. can
bring clarity to issues and help identify key information and concepts to resolve the case. In some cases,
mediation or the use of experts may be useful, informal mechanisms to consider in order to resolve
particularly problematic issues, depending upon the matter being addressed. They may also avoid the need
to initiate more formal arbitration proceedings under those treaties that provide for the latter.

3.5.2. Mediation

Process-related assistance such as the use of a mediator or facilitator could help provide a perspective on
the discussions, identify process hindrances, and in some cases bring more of a problem solving focus to
the discussions. Neutrality and impartiality on the part of the mediator/facilitator is crucial to a successful
outcome.

A mediators role may offer an opportunity for the competent authorities to view a specific case, or the
MAP process itself, from a much different perspective. This perspective, perhaps acquired through the
mediators restatement of the positions or of the critical issues, may illuminate elements of a case or of the
MAP process that are not perceptible when viewed from the standpoint of an administration defending an
adjustment or one that is being asked to provide relief. In this regard, mediation may assist in resolving
some of the more systemic issues of a MAP relationship.

28
The primary responsibilities of a mediator are the clear identification and reinforcement of the goals of the
MAP proceedings, clarification of facts, objectively restating positions, and ultimately seeking
opportunities for resolution. In addition, the mediators ability to disengage parties from a classic dispute
pattern, typical of a zero sum game, and shift the focus to a more collegial and collaborative approach to
resolving the issues at hand will facilitate the competent authorities in reaching a satisfactory result.

As with most case specific taxation issues, the use of any independent third party in the MAP process
would of course require that all stakeholders are in agreement on the terms and conditions of their
participation and that they adhered to the relevant confidentiality provisions.

Best Practice N16: Bilateral process improvements

Some competent authorities have devoted considerable time to bilateral and multilateral deliberations on
both process and on substantive treaty issues, which has proven to advance the MAP process. Specific
process improvements have been produced by way of published MAP guidance ranging from specific
process timelines to establishing broad objectives or mandates. (See, e.g., 25th October 2000
Administrative Arrangements agreed between U.S. and U.K. competent authorities, as well as PATA
Guidelines). The benefit of this guidance is that it reaffirms what is sometimes intuitive to experienced
personnel and then memorialises the outcome via agreement and publication. The result is a legacy
agreement or understanding that will encourage its continued application.

Where treaty partners have significant caseload, bilateral memoranda of understanding have been
successful in enhancing consistency and providing a roadmap for continued improvements. Bilateral
training where competent authorities have taken the exact same training courses or have carried out joint
sessions has been successful. Maintaining these process improvement initiatives over an extended period
of time would likely continue to serve the MAP process well.

3.6. Competent Authority Agreements

Competent authority agreements or resolutions are often case and time specific. They are not considered
precedents for either the taxpayer or the tax administrations in regard to adjustments or issues relating to
subsequent years or for competent authority discussions on the same issues for other taxpayers. In fact, the
letters exchanged between competent authorities to resolve a case often state as much. This is because the
competent authorities have reached an agreement that often takes into account the facts of the particular
taxpayer, the differences in the provisions of the tax law in each country, as well as the effects of the
economic indicators on the particular transactions at the relevant time. Any review or adjustments of
subsequent years by a taxpayer or tax administration is best based upon the particular circumstances, facts
and documentary evidence existing for those years.

In most cases, a taxpayer cannot accept the terms of an agreement for only some issues or taxation years
involved, unless both competent authorities agree. This is due to the fact that the competent authorities
commonly consider the original request by the taxpayer, which is usually multifaceted, in its entirety and
often consider all aspects (issues and taxation years) involved at one time and as one case, and ultimately
one outcome. Practical and pragmatic solutions to contentious MAP cases are regularly the result of
compromise and concessions made by parties involved and therefore a holistic approach is routinely used.

As mentioned in the Section 3.8. What Happens When an Agreement is Reached?, if a taxpayer is not
satisfied with the agreement arrived at by the competent authorities, the taxpayer may reject it. If this
occurs, the competent authorities may consider the case closed and advise the taxpayer accordingly or they

29
may reconsider any new, reasonable, alternative position proposed by the taxpayer at that time. Assuming
a competent authority agreement has been rejected and a valid notice of objection or an appeal has been
lodged under applicable domestic procedures, the taxpayer typically has the option to proceed through the
appeals process and/or to court, if applicable. If the other redress mechanism (appeal or court decision)
does not reverse the adjustment in its entirety, double taxation may remain.

In such cases, it would be appropriate for the competent authority to accept another request (or reconsider
the original request) by the same taxpayer on this same issue and years to address any remaining double
taxation. For the most part, competent authorities only present the case to the other competent authority
for the latter to provide relief to the extent it believes is warranted and will not themselves consider the
provision of relief on a second request. Taxpayers should be cautioned that both competent authorities
may share the same view or policy that relief will not be provided on a second request when full relief was
offered and rejected by the taxpayer on the initial MAP case.

3.7. Debriefing the Taxpayer

Although competent authority proceedings are a government-to-government process and taxpayers do not
have a specific right to attend or observe discussions between the competent authorities, the competent
authorities recognize that the taxpayer is a stakeholder and client in the MAP process.

As such, it is appropriate to debrief the taxpayer after each substantial MAP discussion (usually via
telephone) and at the conclusion of a file. The debriefing need not be a detailed summary of the meeting
nor should it be a full disclosure. The debriefing should give the taxpayer a general sense of the direction
of its case and some estimation, if possible, of the time to resolve it.

3.7.1. Transparency at the resolution stage

Transparency is one issue where competent authorities in general can improve. It becomes even more
important at the resolution stage of the MAP to dispel allegations that competent authorities have traded
cases. Thus, advising the taxpayer not only of the outcome but how the competent authorities arrived at
the decision is important.

Best Practice N17: Decision summaries

A summary of a MAP decision provided to the taxpayer, which describe the underlying reasons and
principles of an outcome, will assist in examining why a particular result was agreed to.

These summaries can be either via closing letter to a case or provided orally in a closing meeting.
Meetings would be beneficial in contentious cases or cases with unusual outcomes to ensure all elements
of the decision are understood.

3.8. What Happens When an Agreement is Reached?

When the competent authorities resolve a MAP case, this resolution should be confirmed by an exchange
of letters. Since some MAP agreements can be rather complicated, it is best to exchange these letters soon
after the conclusion of the discussions to ensure an accurate reflection of the terms agreed upon. At this
time it would be appropriate for the competent authorities to agree upon a tentative schedule for the
implementation of the agreement.

30
In addition, competent authorities are encouraged to communicate the terms of the resolution to the
taxpayer as soon as possible. This communication may take place prior to the exchange of letters if
mutually agreed to by the competent authorities.
If the terms and conditions of the resolution are not satisfactory to the taxpayer, the taxpayer may be
entitled to withdraw from the MAP process and pursue other domestic redress mechanisms still available.
If the terms are satisfactory, the taxpayer usually accepts the MAP results in writing and agrees to
withdraw its domestic objections (if filed) or to refrain from seeking any further recourse on the same issue
and years.
Competent authorities should not implement the resolution under the MAP process with a taxpayer until
the exchange of letters between competent authorities has occurred.
Once letters have been exchanged, and where required the taxpayer has accepted the resolution, a
competent authority should give, or arrange to give, it effect in its jurisdiction.

3.9. Recommended Timelines for MAP

Whilst the time taken to complete a MAP case may vary according to its complexity, most competent
authorities endeavour to complete a case within two (2) years from the date of acceptance of the taxpayers
MAP request. The chart in Annex 1 suggests an ideal timeline for a typical MAP process. Of course
timelines may be extended or cut short depending upon the facts and circumstances of a particular case.
Regular updates to taxpayers and the other competent authority can be a valuable tool to focus a competent
authority (and more specifically competent authority analysts) on the specific timelines of a case. During
the evaluation stage, the competent authorities may find it particularly useful to advise each other on their
progress at least every three (3) months. Regular reports may be provided by way of telephone, briefing
notes, correspondence, teleconferencing, face-to-face meetings or any other form of communication
acceptable to the competent authorities. The objective of these communications is to ensure that both
competent authorities are kept informed of a cases progress to facilitate timely resolution.
A common goal of four (4) to six (6) months for a competent authority to provide an initial position paper
is widely considered to be realistic and appropriate. This time period would most appropriately begin with
the latter of: (i) the receipt of a complete submission of pertinent information and (ii) the receipt by the
competent authority responsible for drafting the initial position paper of confirmation of the competent
authorities mutual understanding to accept the case. If this goal is not achievable, advising the other
competent authority in writing as to the reasons for the delay and the likely timeframe for producing a
paper would help competent authorities to manage cases, office workload, and resources.
It is expected that the evaluation and response (written or verbal) by the other competent authority be
within the six (6) months following receipt of the position paper. Should it be necessary, supplementary
questions and responses prior to a meeting can be helpful to explain any remaining unclear issues. In
addition, it would be constructive to exchange relevant information well in advance of a face-to-face
meeting in order to conduct more efficient and productive meetings. This will allow competent authorities
to have sufficient time prior to the meeting to give due consideration to a particular case or issue.

Best Practice N18: Recommendation for MAP cases beyond two years

In some instances a competent authority may not be able to meet a two-year timeframe, or other timeframe
agreed upon by the competent authorities, to complete a case (See Annex 1 for an ideal timeline for MAP).
For example, this may occur when information is not received in a timely manner or the particular case is
unusually complicated. In such situations, the competent authorities may simply continue their discussions
or may find it useful to agree to a reasonable extension of the timeframe within which they expect to be

31
able to resolve the case. For cases that have exceeded, or are likely to exceed, a reasonable period of time,
it is advisable for senior officials of the competent authorities to undertake a review of the case to
determine the reasons for the delay and then agree upon an approach to ensure the efficient completion of
the case.

32
 4. MAP AND DOMESTIC LAW

4.1. Interaction between MAP and Domestic Recourse Provisions

With respect to adjustments or actions by a tax administration, it is advisable for taxpayers to protect, for
greater certainty, their rights of domestic appeal or redress and they should take note of the domestic
processes for doing so. Although in most cases the competent authorities reach agreement and relieve
taxation not in accordance with the tax convention, there is no further recourse when a MAP agreement
cannot be reached using all of the available mechanisms or programs of MAP (including possible avenues
within MAP such as mediation, arbitration, advance pricing arrangements, etc., if available) if domestic
rights have not been protected.

In most cases, tax administrations prefer to deal with an issue either via MAP or domestic recourse, but not
both at the same time (with the exception of some countries offering a simultaneous MAP and domestic
recourse program) to avoid duplication of effort. Therefore depending upon which process is chosen, it is
recommended that the other process be held in abeyance pending the outcome of the first, taking into
consideration the consequences of doing so in each jurisdiction.

Choosing domestic recourse such as court proceedings over MAP may in some jurisdictions result in a tax
administrations being bound by the decision of the court and prevented from providing relief through
MAP. Where a competent authority takes the position that it cannot, or will not, deviate from domestic
court decisions in MAP, it should make this position public and duly explain the legal basis of its position.

Notwithstanding the above, a taxpayer may in many instances make a competent authority request
regarding one issue of an adjustment, and independently pursue another separate issue with domestic
recourse.

Competent authorities are not bound by a decision given by a foreign court or a foreign appeal settlement.
The granting of any relief to a taxpayer by a competent authority in such situations will depend more on
the merits of the case rather than on another countrys inability to provide relief. Therefore, a country
refusing access to, or relief via, MAP cannot genuinely expect the other country to provide unilateral relief
for that reason alone.

The Commentary (with proposed revisions) to the OECD Model Tax Convention provides for further
guidance on the interaction of MAP and domestic recourse provisions.

4.2. Taking Protective Measures to Preserve Ability for MAP Agreement to be Implemented

The OECD Model Tax Convention provides an avenue of recourse as established in Paragraph 1, of Article
25, irrespective of the remedies provided by the domestic law of those States. Paragraph 2 of the
same article provides the means by which a mutual agreement is implemented: [a]ny agreement reached
shall be implemented notwithstanding any time limits in the domestic law of the Contracting States.

However, not all countries follow the exact wording of the OECD Model Tax Convention in their specific
treaties, as noted in Subsection 3.2.2. Time limits for implementation of relief where treaties deviate from
the OECD Model Tax Convention. As a result, it is advisable that taxpayers verify the wording of the

33
applicable convention in order to protect their ability to obtain relief. Alternatively, if specific OECD
wording (or something similar) is not included in either the MAP article or other appropriate article of the
convention, a taxpayer would be well advised to ensure that the years in question do not expire due to time
limits under domestic law (i.e. becoming statute-barred). Taking this extra precaution ensures that the
competent authority is able to provide the requested relief despite the expiration of the normal domestic
time limits. In this regard, a taxpayer should protect its domestic rights by filing waivers of domestic time
limits on assessments (if possible), a protective claim, or lodging an appeal, if applicable.

Valid waivers (or similar extensions of time limits) may permit tax administrations to make adjustments,
thereby providing relief or otherwise amend an adjustment as a result of competent authority negotiations
for years that would otherwise be legally barred from being adjusted.

Taxpayers should note that in most jurisdictions a domestic waiver, in itself, does not constitute a
presentation of a request to a competent authority. A separate presentation to the competent authority is
typically required. Again, depending upon the domestic tax system, taxpayers are sometimes responsible
for keeping their other relevant income tax filings (regional, state, provincial, etc.) open, where
consequential adjustments may be made.

In cases involving related foreign parties, it is advisable also to take such timely action as may be
necessary with the foreign tax administration, especially in cases where the applicable tax convention
contains its own time limits or where it is unclear whether the applicable tax convention overrides the
domestic time limits. The reason for doing so is that competent authorities will often not rescind an initial
adjustment solely for the reason that the taxation year of the related foreign taxpayer is beyond the time
limits (or its statute-barred date) in the foreign jurisdiction.

In some jurisdictions, other levels of government (states, provinces, territories) have the ability to assess
and charge income tax but are sometimes not bound by tax conventions. Even though competent authority
settlements are often automatically implemented in these jurisdictions it would be prudent for taxpayers to
review domestic law and where necessary preserve their domestic rights to appeal or otherwise change
their taxes payable to coincide with the competent authority settlement.

4.3. Audit Settlements

Audit settlements have been used as a resolution tool in many countries to promote a quicker conclusion of
audit files, and both tax administrations and taxpayers alike have welcomed the ability to come to an
agreement on the pragmatic conclusion of an audit file. As the word settlement implies, there are usually
concessions made on behalf of the parties involved which creates a difficult issue for the MAP process.

One concession tax administrations sometimes seek is a limit on further recourse, in other words the
adjustment agreed to at the audit stage is the final adjustment. Unfortunately, some tax administrations
have included the MAP process in these requested concessions (i.e., by conditioning the audit settlement
on the taxpayers agreement not to pursue MAP for the issue), and in many cases taxpayers have offered to
agree not to seek MAP assistance. The unfortunate result of these types of settlement arrangements can
often be the occurrence of double taxation. Effectively, these arrangements preclude the tax
administrations from resolving double taxation under MAP in such situations and may indeed cause the
other government to deny relief under its domestic law for the tax paid to the first government upon
settlement of the audit.

In some jurisdictions where a taxpayer has, in return for giving up the right to relief under MAP, obtained
procedural advantages or concessions from a tax administration that would reduce the administrations
competent authority ability to defend its case in a MAP discussion (e.g., where the administration has

34
compromised its proposed adjustment on the understanding the taxpayer would not seek to obtain a further
reduction through MAP), then those jurisdictions often impose the policy that the affected issues cannot be
reversed or overturned in MAP proceedings. This effectively limits the availability of MAP relief from
that competent authority and may cause the other competent authority to resist giving MAP relief as well.

In other jurisdictions a taxpayer cannot forfeit its right to access MAP, regardless of the deals struck at the
audit level. Still, even if this right is explicit in these countries, taxpayers may be unwilling to test this
right if they have already agreed not to seek the assistance of MAP. This may be especially true in cases
where the taxpayer will encounter the same tax administration office and auditor in the next cycle.

As mentioned, sometimes taxpayers offer to settle and not to go to MAP, since they had not planned to go
anyway. In these cases, taxpayers often see a larger risk in exposing themselves to the other tax
administration, where they have not yet been audited. Cautious taxpayers are often concerned that
exposure in the MAP process could potentially lead to an audit referral.

4.4. Unilateral APA

Unilateral Advance Pricing Arrangements (APAs) are one-sided tools addressing issues with bilateral
implications. Bilateral APAs offer greater tax certainty and address the full scope of a transaction and are
therefore favoured over unilateral APAs. Although unilateral APAs may be useful in certain
circumstances, such as covering issues or transactions where no applicable tax convention exists, they may
prove to have limited utility where both tax administrations actively review the type of transactions being
covered.

In OECD consultations, business has advised that on rare occasions previously concluded unilateral APAs
may preclude a taxpayer in some jurisdictions from accessing MAP if they later find themselves subject to
double taxation. Such preclusions would diminish the effective operations of MAP and should be avoided.

Best Practice N19: Avoid blocking MAP access via audit settlements or unilateral APAs

It is a best practice for both taxpayers and tax administrations to avoid the inclusion of a waiver of access
to MAP in audit settlements. Since MAP involves bilateral issues it is inappropriate to have two parties
(the taxpayer and one tax administration) not include a third involved party (the other tax administration)
in the final resolution of a file.

First of all, taxpayers may not realize the potential implications of double taxation and the fact that an
adjustment by the other tax administration may complicate the issue. Secondly, tax administrations should
consider the issues of cooperation and reciprocity as well as the fact that one-sided settlements will not
serve tax administrations well in the long run.

As for unilateral APAs, if a foreign adjustment is raised against a transaction or issue covered by a
unilateral APA, the unilateral APA should be treated as the taxpayers filing and therefore eligible for
MAP and adjustable, as opposed to an irreversible settlement.

4.5. Relief from Collections, Interest, and Penalties

Many countries have differing views on whether interest and penalties on an underlying income adjustment
are covered by a convention. In the view of some countries, the scope of some tax conventions does not
extend to cover interest or penalties. In such cases, the competent authority is sometimes prohibited from

35
directly waiving or dealing with interest or penalties resulting from adjustments that are the subject of a
request for competent authority assistance.

4.5.1. Penalties and MAP

For example, the application of a transfer pricing penalty is often a related compliance issue (such as a
documentation penalty) that is not covered by the MAP of a tax convention. Accordingly, a competent
authority may not be able to address the amount or applicability of a transfer pricing penalty (depending
upon the structure of the penalty) with a foreign tax administration. However, in many cases a transfer
pricing penalty is linked to, or is a function of, the amount of the adjustment to income. In these cases, if
the amount of the income adjustment changes as the result of a MAP agreement, the penalty gets adjusted
indirectly, regardless of whether the countries otherwise view the convention as covering penalties.

Even where an adjustment, which has given rise to a penalty, is wholly or partially sustained in a
negotiated MAP agreement, some countries are willing to consider providing relief from the penalty
through the MAP agreement depending upon whether the initial justification for the penalty remains after
the review of the facts and circumstances by the competent authority.

4.5.2. Interest relief and MAP

It is widely acknowledged that a taxpayer may suffer the economic equivalent of double taxation, even
where underlying double taxation is eliminated through a MAP agreement, if there is considerable
asymmetry between two countries treatment of interest that may accrue on tax liabilities and refunds. For
example, this typically happens where one country charges interest on a tax deficiency (or insists on
collecting tax from the taxpayer prior to resolution of the dispute) and the other country does not pay
interest on tax refunded to the taxpayer upon resolution of the dispute and the result is a notable monetary
burden.

For cases where it has been accepted that the tax convention also covers relief of interest under Article
25(1) or 25(3), the competent authorities have the latitude to consider symmetry in their approaches to
interest in order to prevent an undue burden on the taxpayer. A related issue involves the tax effect of
interest (i.e., whether the taxpayer is taxable on interest received on refunds or is able to deduct interest
paid on deficiencies). Countries divergent domestic policies may make it difficult to balance out the tax
effect of interest receipts and payments on tax amounts that have been in dispute in MAP cases.

In these examples, some countries are willing to offset or relieve interest in this manner to reduce the
asymmetry created by the divergent treatment, but these countries usually expect reciprocity from the other
country in similar but opposite cases, if applicable. Notwithstanding the complexities, competent
authorities who bring a flexible and open attitude to such situations are often able to work out solutions
that offer a reasonable level of symmetry to taxpayers.

Regardless of whether a taxpayers interest burden is attributable to divergent policies of the two treaty
countries, the relief of interest for the period of time a taxpayer is in the MAP process, especially if that
period is beyond a reasonable period, may seem warranted given that the taxpayer is not in control of large
segments of the MAP process, such as the competent authority-to-competent authority discussions. In
countries where the scope of the convention does not cover interest, some tax administrations have adopted
a policy to consider this interest relief via domestic remedies that may be dependent upon factors related to
undue delays, hardship, or taxpayer cooperation. These countries, however, often take the position that
interest relief should not extend to interest accruing outside the time boundaries of MAP, since it is their
view that the MAP process is not the appropriate vehicle to try to harmonise divergent domestic policies in
this area.

36
Best Practice N20: Interest relief

It is desirable for competent authorities to consider adopting flexible approaches to diminish any undue
interest burden on taxpayers attributable to the countries divergent treatment of interest in MAP cases.
Although complete harmonization across a treaty network may be unrealistic, competent authorities could
consider developing general guidelines in conjunction with their counterparts for known and particularly
adverse situations of undue interest burden caused by asymmetrical domestic policies on interest.

4.5.3. Collections and MAP

There are several reasons why suspension of the collection of tax pending resolution of MAP can be a
desirable policy. Any requirement to pay a tax assessment specifically as a condition of obtaining access to
MAP in order to get relief from that very tax would generally be inconsistent with the policy of making
MAP broadly available to resolve such disputes. Even if a MAP agreement ultimately eliminates any
double taxation or other taxation not in accordance with the Convention, the requirement to pay tax prior to
the conclusion of the MAP may permanently cost the taxpayer the time value of the money represented by
the amount inappropriately imposed for the period prior to the MAP resolution, at least in the fairly
common case where the respective interest policies of the relevant Contracting States do not fully
compensate the taxpayer for that cost. Thus, this means that in such cases the MAP would not achieve the
goal of fully eliminating, as an economic matter, the burden of the double taxation or other taxation not in
accordance with the Convention. Moreover, even if that economic burden is ultimately removed, a
requirement on the taxpayer to pay taxes on the same income to two Contracting States can impose cash
flow burdens that are inconsistent with the Conventions goals of eliminating barriers to cross-border trade
and investment. Finally, another unfortunate complication may be delays in the resolution of cases if a
country is less willing to enter into good faith MAP discussions when a probable result could be the
refunding of taxes already collected. If the tax in question is in jeopardy of being lost due to bankruptcy or
due to the taxpayer becoming a flight risk, then collection practices allowing for immediate recovery seem
appropriate. Collection practices generally assess risk and therefore one would expect that a similar
assessment could be made of the MAP applicants.

If risk assessment is not a possibility for some tax administrations, then allowing for the provision of
security or the payment of interest by the tax administration on refund balances (if current laws or policies
do not allow this already) could minimise this detrimental effect of double taxation. This provision is less
desirable than outright suspension, since a taxpayers working capital and therefore liquidity is normally
affected by the encumbrance of an asset or the provision of the type of security required by a tax
administration.

Best Practice N21: Suspension of collections during MAP

The collection of tax as a condition to entering a program to relieve that very tax is generally considered to
be unreasonable. Thus, it is a best practice and goal for tax administrations to provide a procedure for
suspension or deferral of the requirement to pay a tax liability (including interest thereon) or the collection
action of a tax administration on income tax that is the subject of the request for competent authority
assistance. The decision to suspend or defer collection could be made after a risk assessment has been
conducted by the tax administration to determine ability to pay or the creditworthiness of the taxpayer.
The suspension/deferral could begin at the time of application and remain in place until the resolution of
the case by the competent authorities.

37
In some countries suspension or deferral of collection actions is not possible due to various reasons beyond
a policy determination. In these cases, the acceptance of security in lieu of payment during competent
authority proceedings may be an opportunity to lessen the effect of double taxation.

Many states may require legislative changes to implement the suggested best practices on both interest
relief and the suspension/deferral of collections.

The Commentary (with proposed revisions) to the OECD Model Tax Convention provides for further
guidance on the interaction of collections, interest, and penalties with MAP.

4.6. Secondary Adjustments, Withholding Tax, and Repatriation on Transfer Pricing

Adjustments

Transfer pricing adjustments made under domestic law may also give rise to so-called secondary
adjustments. For example, the amount of the income adjustment to a subsidiary for its excessive payment
on a transaction with a non-resident parent may also be treated by the subsidiarys jurisdiction as a deemed
dividend paid to the parent and therefore a withholding tax may be applicable. Under normal
circumstances, these secondary adjustments are reversed if the primary adjustment is reversed or, in the
case where correlative relief is provided by the other competent authority, if the taxpayer repatriates funds
from the non-resident equivalent to the amount of the transfer pricing adjustment. In these two instances,
relief from the secondary adjustment should be a consequence of the MAP settlement.

A mutually agreed upon settlement between the competent authorities in respect of a transfer pricing
adjustment will normally include agreed terms for repatriation of funds involved in the primary adjustment.
These terms are specific to the particular settlement between the two governments. The terms may vary,
but generally allow for the repatriation of funds to be effected either by a direct reimbursement or through
an offset of inter-company accounts. Typically, the agreed terms also allow a taxpayer to repatriate within
a mutually agreed reasonable time period, free from withholding taxes by the country out of which the
repatriation is made and from any additional taxable treatment in the country to which the repatriation is
made. Repatriation may be subject to audit verification.

Subject to the discussions and best practices on interest relief, normally there is no waiver for interest
applicable to the tax liability attributable to the initial primary adjustment, or part thereof, if it remains in
place as part of the MAP resolution. However, where the country to which the repatriation payment will
be made would otherwise require that payment to include an interest component to compensate its resident
taxpayer for the foreign associated enterprises use of that taxpayers funds between the time of the initial
transaction and the repatriation, the competent authorities may agree to allow the repatriation to occur
without any interest component, in order to minimize the complications from the repatriation.

A repatriation agreement reached at an audit stage should not preclude a request by the taxpayer for
competent authority assistance nor should it indicate concurrence or agreement with an audit adjustment.
Where a taxpayer proceeds to request competent authority assistance after concluding a repatriation
agreement, it is appropriate for the competent authority to amend the repatriation agreement for any
changes made to the amount of the adjustment as a result of the MAP process and to waive any
requirement for the repatriation to include an interest component. Where a taxpayer proceeds to request
competent authority assistance without having concluded a repatriation agreement at the audit stage, the
competent authority may agree on terms of repatriation with the competent authority of the treaty country.

38
 5. GUIDELINES FOR COMPETENT AUTHORITY OPERATIONS

5.1. Authority and Accessibility

Tax conventions typically designate the person who is to act as each countrys competent authority (e.g.,
the Minister of Finance or his authorised representative or the Secretary of the Treasury or his
delegate). The subsequent delegation of powers of a competent authority usually happens within a
countrys tax administration. Since designations can be at a fairly senior level within government, it is for
practical and administrative purposes that the powers and authority of the competent authority function are
typically delegated to officials who will carry out the day-to-day responsibilities of the function.

Therefore most competent authorities delegate the full powers of the function (in other words, the legal
authority to conclude a MAP arrangement) to the required personnel who carry out, or are involved in, the
day-to-day functioning of the MAP program. It is advisable to have key personnel who will ultimately
make the important decisions on a file intimately involved. In doing so, competent authorities will
alleviate one common constraint to the success of any type of resolution process, which is having
decision-makers too far removed from the information.

In order to administer tax conventions as effectively and efficiently as possible, it is beneficial to have a
competent authority that is readily accessible to taxpayers and has the authority to complete its mandate.

Best Practice N22: Readily available access to a competent authority

It is important for a government to publicise the identity of the officials who have been delegated the
responsibility to carry out the competent authority function, along with their contact details. OECD
Member countries should ensure that their MAP country profiles with this information on the OECD
website are kept up to date.

Moreover, the competent authority officials involved in the day-to-day casework are often the
representatives who require the delegated decision-making powers to conclude a MAP arrangement. MAP
discussions may become hindered if the decision-maker or individual making the final recommendation
on a case is too far removed from the detailed bilateral discussions. As with most generic negotiations, if a
person of influence or authority to conclude a case attends a MAP meeting, there is a better chance of
progress and a forthcoming decision. Nevertheless, competent authorities may decide to consult broadly
within their offices and make decisions via consensus (for example, an informal, internal review
committee) to ensure consistency and internal transparency.

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 States ability to operate an effective MAP program.

39
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 authoritys 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 CA 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 States 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

40
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 N23: 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 authoritys 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.

5.3. Performance Indicators and Training

Performance indicators such as time taken to resolve a case, consistency, and case outcomes focusing on
principled and objective results, help support the overall goals and objectives of the MAP program. Use of
personnel evaluations based upon these criteria, especially for new staff, may help reinforce these key
elements.

Training in the area of soft skills such as conflict resolution and consensus building can be helpful in
achieving amicable resolutions of MAP cases. Specific training on the win-win proposition would
further promote the concept of joint problem-solving.

41
Best Practice N24: Performance indicators for the competent authority function and staff

Appropriate performance indicators for the competent authority function and staff relating to consistency,
the time to resolve cases, and principled and objective MAP outcomes will reinforce these important goals
for MAP. Appropriate training should be used to address deficiencies.

One indicator which must not be used to measure a MAP program or its staffs performance is the amount
of sustained audit adjustments or tax revenue. Although tax administrations may wish to collect related
data to assist in the evaluation of the quality of initial adjustments by an audit program, it is suggested that
this information remain segregated from that used to assess competent authority programs.

42
 6. OTHER MAP PROGRAMS

6.1. Accelerated Competent Authority Procedure (ACAP)

In addition to a request for competent authority assistance in respect of a specific adjustment to income,
some competent authorities allow taxpayers to request assistance for subsequent filed taxation years on the
same issue. Once an ACAP request has been received, a competent authority may consult with the
appropriate authorities within the tax administration (audit function or field office) to determine whether an
ACAP is suitable for the taxpayers particular circumstances. Normally, the issue must be one that is
recurring and relevant to a specific adjustment.

The competent authority then consults with the foreign competent authority under the MAP process
endeavouring to resolve the issue. In most cases, the request or acceptance of an ACAP will not preclude
or diminish a tax administrations right to later examine or review the issues addressed by the ACAP.

6.2. Advance Pricing Arrangements (APAs)

Many competent authorities also deal with APA requests. APA programs assist taxpayers in determining,
in advance, transfer pricing methodologies and their application to specific cross-border non-arms length
transactions for specific periods of time, with the objective of avoiding double taxation that may otherwise
occur. If an APA program is available, a taxpayer may request a bilateral APA with respect to specified
cross-border transactions, which is conducted via the MAP article of a tax convention. Once concluded,
bilateral APAs provide an increased level of tax certainty in both tax jurisdictions, thereby considerably
lessening the likelihood of double taxation.

Bilateral APAs are becoming more popular because they proactively prevent disputes and over the long
term are a cost effective tool for both taxpayers and governments. Many countries publish APA annual
reports describing their programs and publicising statistical results to promote their use and ensure
transparency in the process. For more details about the various APA programs available, please refer to
the most current version of the OECD Country Profiles to obtain country specific guidance.

Best Practice N25: Implementing and Promoting ACAP and Bilateral APA Programs

Establishing and actively promoting ACAP and APA programs will reduce the number of international tax
disputes and provide taxpayers and tax administrations with greater tax certainty. Mature ACAP and APA
programs have provided taxpayers with an effective alternative to the typical MAP process.

6.3. Other Types of MAP Proceedings

Although not typical, a competent authority may, in rare cases, initiate competent authority proceedings
and subsequent discussions without a specific request from a taxpayer in any situation where there is
taxation not in accordance with a tax convention in order to protect domestic interests.

For example, a competent authority may disagree with the interpretation by its treaty partner of a provision
in a tax convention. Such a situation could involve a specific taxpayer or a group of taxpayers. In either
case and if warranted and practicable, taxpayers should be advised of the competent authority proceedings

43
and could be invited to make representations, if applicable, and they should in any event be advised of the
outcome.

Other MAP proceedings initiated without a taxpayer, where competent authorities seek to clarify with their
treaty partner their interpretation or application of a convention, as described in Subsection 1.2.2
Interpretation or application cases and double taxation in cases not otherwise provided for in a
convention, are more common.

44
 ANNEX 1 AN IDEAL TIMELINE FOR A TYPICAL MAP PROCESS

Stage Action Illustrative Target Time Frame

First Initiation of MAP by taxpayer: submission of MAP Time-limit provided for by the
request treaty (OECD Model Tax
Convention: 3 years from
notification of action giving rise to
taxation not in accordance with
the convention).
Confirmation of the receipt of MAP request to the Within a month after initiation by
taxpayer and advising the other competent taxpayer of MAP.
authority (CA) of the request.
In transfer pricing cases, the taxpayer or
associated enterprise in the other country is also
encouraged to contact the CA in the other country
and to promptly and simultaneously provide all
supporting materials.
Preliminary review of case by CA that received
request.
Possible requests for additional information to
taxpayer.
Determination of eligibility for MAP by CA that Within a month after the
received the request. necessary information is provided
Notification to taxpayer by that CA if the case is to the CA that received the
accepted or rejected. request.
(If accepted) Proposal to the other CA to start MAP
discussions: issuance of opening letter to the other
CA.
Confirmation by the other CA of receipt of MAP Within a month after the receipt of
request, preliminary screening for completeness of the opening letter from the CA that
request and notification of decision to accept or received the request.
reject request.

Second Analysis & Evaluation by the CA of the country that Ideally within 4 months, but no
initiated the adjustment. later than 6 months after
Initiation of MAP consultations with other CA (if the agreement between CAs to enter
CA of the country that initiated the adjustment is into MAP consultations.
unable at this point to arrive at a satisfactory
solution i.e. provide unilateral relief): Issuance of
position paper by the CA of the country that
initiated the adjustment.

45
 Review of case by the other CA (the CA being Within 6 months of receiving the
asked to provide relief), preliminary screening for position paper.
completeness of position paper and notification of
missing information and determination whether it
can provide unilateral relief to taxpayer.
Response to the position paper by other CA.
2
Negotiation between the CAs. 6 months

Third Mutual Agreement between the CAs: document Within 24 months of the
the CA agreement in the form of memorandum of acceptance date of a MAP
understanding. request.
3
Taxpayers (and other interested parties ) To be submitted immediately after
approval of mutual agreement. conclusion of mutual agreement.
1 month deadline to respond.
Confirmation of mutual agreement with terms and As soon as possible after
conditions: exchange of closing letters. acceptance of mutual agreement
by taxpayer (and possibly other
parties).
Implementation of mutual agreement. No later than 3 months after
exchange of closing letters.

2
Face to face meeting(s) between the CAs can be organized in this stage, or in any other stages when necessary.
3
Where the administrative-territorial subdivisions or any local tax authorities consents are necessary or required.

46
 ANNEX 2 BEST PRACTICES

Best Practice N1: Resolving and publishing issues of interpretation or application

Best Practice N2: Robust use of Article 25(3) power to relieve double taxation
Best Practice N3: Principled approach to resolution of cases
Best Practice N4: Transparency and simplicity of procedures for accessing and using the MAP
Best Practice N5: Providing complete, accurate, and timely information to the competent authorities
Best Practice N6: Allowing electronic submissions
Best Practice N7: Allowing early resolution of cases
Best Practice N8: Earlier notification of a potential case
Best Practice N9: Liberal interpretation of time limits and advising of treaty rights
Best Practice N10: Avoiding exclusion from MAP relief due to late adjustments or late notification
Best Practice N11: Consideration of MAP assistance for cases described as tax avoidance
Best Practice N12: Countries eliminate or minimize exceptions to MAP
Best Practice N13: Taxpayer presentations to competent authorities
Best Practice N14: Cooperation and transparency
Best Practice N15: Face-to-face meetings between competent authorities
Best Practice N16: Bilateral process improvements
Best Practice N17: Decision summaries
Best Practice N18: Recommendation for MAP cases beyond two years
Best Practice N19: Avoid blocking MAP access via audit settlements or unilateral APAs
Best Practice N20: Interest relief
Best Practice N21: Suspension of collections during MAP
Best Practice N22: Readily available access to a competent authority
Best Practice N23: Independence and resources of a competent authority
Best Practice N24: Performance indicators for the competent authority function and staff
Best Practice N25: Implementing and promoting ACAP and bilateral APA programs

47
 ANNEX 3 MEMAP GLOSSARY

Accelerated Competent Authority Procedure (ACAP)

In addition to an ongoing request for competent authority assistance, a taxpayer may request assistance for
subsequent filed, but yet to be audited, taxation years on the same issue. The inclusion of these subsequent
ACAP years in the MAP discussions not only prospectively resolves double taxation but also alleviates
the burden of a separate audit and MAP process.

Advance pricing arrangements (APA)

An arrangement that determines, in advance of controlled transactions, an appropriate set of criteria (e.g.
method, comparables and appropriate adjustments thereto, critical assumptions as to future events) for the
determination of the transfer pricing for those transactions over a fixed period of time. An advance pricing
arrangement may be unilateral involving one tax administration and a taxpayer or multilateral involving
the agreement of two or more tax administrations.

Anti-abuse rules / anti-avoidance laws

Domestic taxation laws that are intended to prevent taxpayers from avoiding tax or abusing tax laws for the
sole purpose of obtaining a reduction, avoidance or deferral of tax.

Arm's length principle

The international standard that OECD Member countries have agreed should be used for determining
transfer prices for tax purposes. It is set forth in Article 9 of the OECD Model Tax Convention as follows:
where "conditions are made or imposed between the two enterprises in their commercial or financial
relations which differ from those which would be made between independent enterprises, then any profits
which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those
conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly."

Arm's length range

A range of figures that are acceptable for establishing whether the conditions of a controlled transaction are
arm's length and that are derived either from applying the same transfer pricing method to multiple
comparable data or from applying different transfer pricing methods.

Assessment taxation by

Taxation by means of either the tax authority or the taxpayer ("self-assessment") computing tax due over a
period, usually a calendar or fiscal year. In effect, the taxpayer pays tax on an income amount after the
gross amount has been received, as compared to taxation by a final withholding tax where a tax amount is

48
retained and forwarded to the tax authorities before a net amount (of dividends, for example) is paid to the
taxpayer.

Associated enterprises

Two enterprises are associated enterprises with respect to each other if one of the enterprises meets the
conditions of Article 9, sub-paragraphs 1a) or 1b) of the OECD Model Tax Convention with respect to the
other enterprise. See Article 3 for the definition of "enterprise".

Comparability (analysis)

A comparison of a controlled transaction with an uncontrolled transaction or transactions. Controlled and

uncontrolled transactions are comparable if none of the differences between the transactions could
materially affect the factor being examined in the methodology (e.g. price or margin), or if reasonably
accurate adjustments can be made to eliminate the material effects of any such differences.

Compensating adjustment

An adjustment in which the taxpayer reports a transfer price for tax purposes that is, in the taxpayer's
opinion, an arm's length price for a controlled transaction, even though this price differs from the amount
actually charged between the associated enterprises. This adjustment would be made before the tax return
is filed.

Competent authority

Competent authority is a term used in tax conventions to identify the person who represents the State in
the implementation of the treaty, as defined under Article 3 of a tax treaty. A sample clause might be:

The term competent authority means, in the case of Utopia, the Commissioner of
Taxation or an authorised representative of the Commissioner and, in the case of
Ruritania, the Minister of Finance or an authorised representative of the Minister.

The competent authority has certain specific functions under the treaty, including acting as a contact point
for both taxpayers and the other competent authority in Mutual Agreement Procedures. Sometimes there
are different competent authorities for different functions under the treaty.

Controlled transactions

Transactions between two enterprises that are associated enterprises with respect to each other.

Correlative adjustment

A term used in the transfer pricing context. An adjustment that creates an increase or decrease in the tax
imposed on one member of the group of controlled taxpayers correlating to the "primary adjustment" made
in respect of another member of the same group. The adjustment may be to the income of the group
member or to an allowance of relief under a foreign tax credit or exemption mechanism. This term is
generally seen as interchangeable with the term "corresponding adjustment", although when speaking of a
particular monetary adjustment, some prefer to refer to "correlative adjustments".

49
Corresponding adjustment

An adjustment to the tax liability of the associated enterprise in a second tax jurisdiction made by the tax
administration of that jurisdiction, corresponding to a primary adjustment made by the tax administration
in a first tax jurisdiction, so that the allocation of profits by the two jurisdictions is consistent.

Dual Residence

The situation wherein a person, being either an individual or a company, is determined "resident" under the
domestic tax laws of both the States having concluded a tax treaty. This would mean the possibility
of juridical double taxation - both States taxing the person as their resident. The provisions of Article 4(2)
and Article 4(3) of the OECD Model Tax Convention are designed to solve such situations by treating the
person as resident - for purposes of the treaty - of only one of the States. See also: "Tie-Breaker Rules".

Economic double taxation

"Economic double taxation" is where two different legal persons are taxed on the same income or other
taxable item by more than one State. This may occur, for example where two States take different views of
the profits made in transactions between a subsidiary resident in one of the States in its transactions with a
parent company in the other State, so that at least some part of the profits on the transaction are taxed in
both States. The OECD Model Tax Convention does not often deal with economic double taxation,
but Article 9 seeks to address aspects of this sort of double taxation of related entities. As noted by
the Commentary on Article 10, at paragraph 40 certain States' domestic tax laws and treaty practice seek to
avoid or mitigate economic double taxation caused by the simultaneous taxation of the company's profits at
the level of the company and of the dividends at the level of the shareholder. Compare "juridical double
taxation".

Exemption Method

The method of relieving double taxation under Article 23A of the OECD Model Tax Convention. Under
this method, where a resident ("R") of one of the treaty partner States receives an amount that may be taxed
in the other treaty State (which we can call for these purposes the "source State") under the tax treaty, the
residence State must, when taxing R, exempt that amount from residence State taxation. In other words, R
will not have to pay any tax to the residence State on the amount where the source State may levy tax under
the treaty, whether or not it actually does so. This is the principle under paragraph 1 of Article 23A.
Paragraph 2 provides an exception, however in that where amounts are only liable to source State taxation
to a limited extent under Article 10 (Dividends) or Article 11 (Interest), the State of residence need only
give a credit, rather than an exemption in respect of that amount. Paragraph 4 provides an exception to the
general exemption provision in paragraph 1. It provides that that obligation does not apply in certain
circumstances where to apply it would result in double non-taxation as a result of different approaches to
the application of the treaty which are both consistent with the meaning of the treaty. This system of tax
exemption deals with avoidance of "juridical double taxation", where the person liable to the residence
State taxation is the same person liable to the source State taxation.
Article 23A does not provide for a "full exemption" system, but is rather, an "exemption with progression"
system (Paragraph 3). This means that although an amount which may be taxed in the source State is
exempt in the residence State, the residence State is still allowed to take that amount into account when
determining the amount of tax that the resident must pay on his or her other (that is, non-exempt) income.
For example, the income may be taken into account as received in order to decide what marginal tax rate
applies to the other income.

50
Foreign Tax Credit

A credit given for foreign tax in calculating the amount of tax to be paid in a person's country of residence.
In effect, a taxpayer need not pay residence country tax on the income where the source country of the
income taxes that income to an equal or greater degree. Where the residence country tax is higher, the
amount of foreign tax is deducted from the amount of local tax otherwise to be paid. This avoids double
taxation where, as is often the case, a tax treaty allows both the source and residence country some taxing
rights.

Functional analysis

An analysis of the functions performed (taking into account assets used and risks assumed) by associated
enterprises in controlled transactions and by independent enterprises in comparable uncontrolled
transactions.

Independent enterprises

Two enterprises are independent enterprises with respect to each other if they are not associated enterprises
with respect to each other.

Juridical double taxation

"Juridical double taxation" occurs where the same legal person is taxed twice on the same income or other
taxable item by more than one State. A common situation is where the source country taxes a payment as it
flows to a person (by dividend or interest withholding tax, for example, which is in effect a tax on the
recipient collected by a withholding agent such as the company paying the dividend) and the residence
state of the recipient also taxes that person on the same item as part of his or her worldwide income. The
division of taxing rights in the OECD Model Tax Convention, when combined with the effect of Article
23 is designed to prevent such juridical double taxation as far as is possible. Compare "economic double
taxation".

MAP

See mutual agreement procedure.

Multinational enterprise group (MNE group)

A group of associated companies with business establishments in two or more countries.

Multinational enterprise (MNE)

A company that is part of an MNE group.

Mutual agreement procedure (MAP)

A means through which competent authorities consult to resolve disputes regarding the application of
double tax conventions. This procedure, which is described and authorized by Article 25 of the OECD
Model Tax Convention, can be used to eliminate double taxation that could arise from a transfer pricing
adjustment, but can also be relevant for other aspects of a tax treaty's operation. In the case of MAP
relating to transactions between associated enterprises, see also Article 9, especially paragraph 2.

51
OECD Model Tax Convention

The Model Tax Convention on Income and Capital published by the OECD, as amended from time to time.
The OECD Model Tax Convention includes Commentaries on the articles of the Model. The OECD
Model Tax Convention serves as a model for the negotiation of bilateral tax treaties between countries.

OECD Transfer Pricing Guidelines

The Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations first published by
the OECD in 1995, as amended from time to time. The Guidelines provide guidance on the use of the
arms length principle to determine transfer pricing between associated enterprises.

Permanent establishment ("PE")

Term given definition by Article 5 of the OECD Model Tax Convention, and used to determine whether
the business profits of a resident enterprise of the treaty partner may be taxed under Article 7 in the other
treaty partner. As Article 7 makes clear, the amount of business profits so taxable is the amount
attributable under that Article to the permanent establishment. The PE test is broadly a test of whether
there is the minimum economic connection necessary to justify source State taxation of such business
profits under the tax treaty.
There are generally two aspects required for there to be a PE, a relationship to a particular place (the
geographical aspect) and a presence for a particular point of time (the temporal aspect). There are,
however, special rules for some types of PEs under the OECD Model Tax Convention, such as
"construction" PEs, where the temporal period required is more than 12 months, and certain PEs
constituted by "dependent agent" arrangements, where no time period applies. There are also some
exclusions under the OECD Model Tax Convention, presences which are specifically stated not to be PEs,
such as activities related solely to storage, display or delivery of goods or merchandise or other so-called
"preparatory or auxiliary activities".
Sometimes the term "permanent establishment" is used in domestic tax legislation as well, but it may not
have exactly the same meaning as in the tax treaties.

Primary adjustment

An adjustment that a tax administration in a first jurisdiction makes to a company's taxable profits as a
result of applying the arm's length principle to transactions involving an associated enterprise in a second
tax jurisdiction.

Repatriation

In the transfer pricing context, this term refers to the act by which an enterprise that has been party to a
controlled transaction with an associated enterprise and has been found, in accordance with a transfer
pricing adjustment, to have derived as a result of that transaction an amount of income that exceeds an
arms length amount, returns the excess funds to its associated enterprise.

Residence State

The residence State is the country where a person is resident under the treaty at the relevant time. In
international tax law, this is a basis for taxation of the global income of the resident. See the text of Article
4, and its explanation, for more on treaty residence.

52
Secondary adjustment

An adjustment that arises from imposing tax on a secondary transaction in transfer pricing cases.

Secondary transaction

A constructive (that is, notional) transaction that some States assert under their domestic transfer
pricing legislation after having proposed a primary adjustment in order to make the actual allocation of
profits consistent with the primary adjustment. Secondary transactions may take the form of constructive
dividends (that is items treated as though they are dividends, even though they would not normally be
regarded as such), constructive equity contributions, or constructive loans.

Simultaneous tax examinations

A simultaneous tax examination, as defined in Part A of the OECD Model Agreement for the Undertaking
of Simultaneous Tax Examinations, means an "arrangement between two or more parties to examine
simultaneously and independently, each on its own territory, the tax affairs of (a) taxpayer(s) in which they
have a common or related interest with a view to exchanging any relevant information which they so
obtain".

Source State

The State where, for the purposes of a treaty, a taxable amount is regarded as arising. As rules in domestic
law about where an amount arises differ (e.g. some might look to where the profits that become a dividend
are made as the source of a dividend, whereas others may look to the State from which the dividend is
paid), the OECD Model Tax Convention often provides implied or specific rules.
For example, a State A State B tax treaty, if it was based on the OECD Model Tax Convention, would
allow State B as the source State to impose a limited withholding tax on dividends paid by corporations
resident in State B to residents of State A (see Article 10), but would prohibit State B from imposing a tax
on dividends paid to a resident of State A by a corporation resident in State C, even if those dividends were
paid out of profits earned by the corporation in State B (see Article 21).Source States may, under general
international tax law, tax income sourced in that State. The residence State may then provide an exemption
or a credit for tax paid in the source State under domestic law. A tax treaty often limits or prevents source
State taxation, and also generally provides that the residence State must give a credit or exemption for tax
paid in the source State under Article 23. Compare "residence State".

Source Tax

Tax on an item of income imposed in the State wherein that income is derived, or tax on an item of capital
imposed in the State wherein that capital is situated. Many Articles of the OECD Model Tax Convention
provide for an exemption from, or a reduction of, such "source" tax on certain items of income or capital.

Tested party

The participant in a controlled transaction that is the party by reference to whom a particular transfer
pricing method is applied.

53
Tie-Breaker Rules

These rules, Article 4 of the OECD Model Tax Convention, at paragraph 2) for individuals, and paragraph
3 for companies, seek to determine a single residence for tax treaty purposes, in those cases where a person
is a resident for domestic law purposes under the domestic tax laws of both treaty States. That can most
obviously happen when the two States apply different tests for residency. The tie-breaker rules do not
themselves affect the situation at domestic tax law generally, although domestic laws sometimes expressly
provide that certain tax benefits are not available to a domestic law resident who is regarded as a resident
solely of the treaty partner State under the relevant treaty's tie-breaker rules. See also: Dual Residence.

Transfer pricing

The terms and conditions applying in transactions between associated enterprises.

Transfer pricing adjustment

An adjustment to the tax liability of an enterprise when a tax jurisdiction applies the arm's length principle
to transactions between associated enterprises in a transfer pricing case. See "primary adjustment" (by the
initial tax jurisdiction), "corresponding adjustment" (by the jurisdiction of the other associated enterprise)
and "compensating adjustment" (reported by the taxpayer based on the arm's length principle though it
differs from the actual terms and conditions of the transaction). See also a "secondary adjustment" (an
adjustment arising from taxing certain notional transactions).

Transfer pricing methodologies

The methods used to make transfer pricing adjustments. The following is a list of methods and
terminology used in transfer pricing:
Comparable uncontrolled price (CUP) method: A transfer pricing method that compares the price for
property or services transferred in a controlled transaction to the price charged for property or services
transferred in a comparable uncontrolled transaction in comparable circumstances.
Cost plus mark up: A mark up that is measured by reference to margins computed after the direct and
indirect costs incurred by a supplier of property or services in a transaction.
Cost plus method: A transfer pricing method using the costs incurred by the supplier of property (or
services) in a controlled transaction. An appropriate cost plus mark up is added to this cost, to make an
appropriate profit in light of the functions performed (taking into account assets used and risks assumed)
and the market conditions. What is arrived at after adding the cost plus mark up to the above costs may be
regarded as an arm's length price of the original controlled transaction.
Profit split method: A transactional profit method that identifies the combined profit to be split for the
associated enterprises from a controlled transaction (or controlled transactions that it is appropriate to
aggregate under the principles of Chapter I of the OECD Transfer Pricing Guidelines) and then splits
those profits between the associated enterprises based upon an economically valid basis that approximates
the division of profits that would have been anticipated and reflected in an agreement made at arm's
length.
Resale price margin: A margin representing the amount out of which a reseller would seek to cover its
selling and other operating expenses and, in the light of the functions performed (taking into account
assets used and risks assumed), make an appropriate profit.
Resale price method: A transfer pricing method based on the price at which a product that has been
purchased from an associated enterprise is resold to an independent enterprise. The resale price is reduced

54
by the resale price margin. What is left after subtracting the resale price margin can be regarded, after
adjustment for other costs associated with the purchase of the product (e.g. customs duties), as an arm's
length price of the original transfer of property between the associated enterprises.
Traditional transaction methods: The comparable uncontrolled price method, the resale price method,
and the cost plus method.
Transactional net margin method: A transactional profit method that examines the net profit margin
relative to an appropriate base (e.g. costs, sales, assets) that a taxpayer realizes from a controlled
transaction (or transactions that it is appropriate to aggregate under the principles of Chapter I of
the OECD Transfer Pricing Guidelines).
Transactional profit method: A transfer pricing method that examines the profits that arise from
particular controlled transactions of one or more of the associated enterprises participating in those
transactions.

Uncontrolled transactions

A transfer pricing term for transactions between enterprises that are independent enterprises (that is, that
are not "associated enterprises") with respect to each other.

Unilateral relief

As part of the MAP process, one competent authority provides relief from double taxation or taxation not
in accordance with the treaty. This unilateral relief can be by way of one competent authority withdrawing
its initial adjustment or by the other competent authority providing a correlative adjustment.

Withholding Tax

A tax imposed at source, whereby a third party, the paying agent (such as a bank paying interest or a
company distributing dividends to shareholders), must "withhold" an amount from the payment and remit
it to the local tax authorities. It is a common way of ensuring that tax is collected from benefits accruing to
overseas taxpayers who are beyond a State's immediate legal jurisdiction. Withholding tax will be "final"
if there is no later adjustment as part of assessment. Otherwise, it is regarded as "provisional", and
depending on the taxpayer's final tax liability there may be a refund or (more rarely) a requirement for
further payment by the taxpayer. Articles 10 and 11 of the OECD Model Tax Convention set limits on
allowable withholding tax rates on dividends and interest under the treaty. Whether the correct tax to be
applied by a State is a withholding tax on gross receipts (such as under Article 11) or a tax on net amounts
(such as taxation of business profits under Article 7 (Business Profits) can be a significant issue under
treaties.

55