The rise and rise of mutual agreement procedures in the EU
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The rise and rise of mutual agreement procedures in the EU

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Eddie Morris, Jennifer Breeze and Janelle Sadri discuss how the growth in the number of mutual agreement procedures, coupled with fine-tuning of the process, has affected its themes of access, resolution and implementation.

The mutual agreement procedure (MAP) remains the most utilised and best way of eliminating double taxation. Perfecting the efficient operation of MAPs through various instruments has been of interest to the OECD and the EU for over two decades. Post BEPS, the incidence of double taxation is rising and the number of MAPs are continuing to increase. The focus is increasingly on ensuring better dispute resolution techniques to eliminate double taxation more effectively. This article draws out some features of the instruments now available.

Dispute resolution statistics

The OECD statistics clearly indicate that more MAP cases are being made. One can subsequently infer from this that there are more audits and more adjustments. This has led to more pressure on MAP itself to perfect how it should work, and more pressure on the competent authorities charged with the task of eliminating double taxation.

In September 2019, the OECD released the MAP statistics for 2018. Notably:

  • The number of new MAP cases initiated increased in 2018, relative to 2017;

  • Transfer pricing (TP) cases increased by nearly 20%, while other cases increased by more than 10%;

  • TP cases accounted for more than 51% of total cases in inventory at the end of 2018; and

  • Though, the average time to close TP cases increased from 30 to 33 months between 2017 and 2018, the number of cases closed during the period increased relative to the prior period (and it is noted that the OECD is strongly encouraging jurisdictions to resolve MAP cases within 24 months of notification).

In its work on dispute resolution during 2005 and 2006, the OECD identified three broad areas where the MAP needed improvement – access, resolution and implementation. That work also introduced an arbitration clause into the MAP article of the OECD Model Tax Convention. The best part of a decade later, MAP improvements were an integral part of the OECD Inclusive Framework BEPS project and have come to fruition in the Multilateral Convention to Implement Tax Treaty Measures to Prevent BEPS (multilateral instrument, or MLI).

Alongside these developments, EU member state resident taxpayers enjoyed the benefits of the EU Arbitration Convention. Ground-breaking at the time of its formulation in 1990, the convention benefited from a series of updates developed by the EU Joint Transfer Pricing Forum and was enshrined in EU 'soft-law' through various codes of conducts agreed to by EU member states. However, the convention always sat uneasily in the EU canon, not being a regular EU instrument. This fundamental issue was addressed in 2019 through the EU Arbitration Directive, a more formal and far-reaching instrument than the convention it effectively replaces.

This article discusses how these developments have addressed the common themes of access, resolution and implementation.

OECD developments

Following on from the BEPS reforms, the OECD recognises that there will be an increase in the use of MAPs as a result of increased audit activity by tax administrations across the globe. Over the past five years, the OECD has been committed to strengthening the effectiveness and efficiency of the MAP process, and ensure that it is widely accessible to taxpayers.

The aim of BEPS Action 14 was to develop solutions to address obstacles that prevent countries from addressing treaty-related disputes under the MAP, including the absence of arbitration provisions in most treaties, and the fact that access to MAPs and arbitration may be denied in certain cases. In its 2015 Final Action 14 Report 'Making dispute resolution mechanisms more effective' (the Final Report), the OECD emphasised the fundamental importance of the MAP mechanism to the proper application and interpretation of tax treaties, developing a minimum standard for treaty-related dispute resolution, and a set of best practice recommendations.

The OECD has demonstrated continued momentum over recent years, implementing the various measures outlined in the Final Report. For example, the peer review and monitoring process is designed to keep countries accountable in their bid to both streamline the MAP process and conclude more MAP cases. The online Manual on Effective Mutual Agreement Procedures (MEMAP) also signals the OECD's commitment to continuously improve the MAP process and its functionality, encouraging greater consistency in how MAP issues are dealt with and improving the speed and effectiveness of the process.

The MLI is a vital instrument in the OECD's ability to deliver on Action 14. The MLI is effectively a multilateral treaty that enables jurisdictions to swiftly modify their bilateral tax treaties to give effect to the relevant recommendations contained in the OECD/G20 BEPS package. As noted by Angel Gurria (OECD Secretary-General), "in addition to saving jurisdictions from the burden of bilaterally re-negotiating these treaties, the MLI results in more certainty and predictability for businesses, and a better functioning international tax system for the benefit of our citizens."

The MLI was adopted on November 24 2016. There are already approaching 100 signatories and parties to the MLI, which entered into force on July 1 2018. To encourage the widest possible uptake, the MLI incorporates flexible features that are designed to allow countries to tailor their adoption to fit their circumstances and accommodate unique aspects of their treaty network. For the MLI to modify a bilateral tax treaty, both treaty partners must (i) have signed and ratified the MLI and (ii) identified those treaty(ies) intended to be covered by the MLI. While some of the MLI articles are mandatory, most are optional. Jurisdictions can, for example, choose to adopt the minimum standards only, or they can choose to also adopt some, or all, of the optional articles.

Article 16(1) of the MLI replicates Article 25(1) of the OECD Model Tax Convention (2017 update), and it has made an improvement on the 2014 OECD Model Tax Convention by requiring the contracting states to provide taxpayers with wider access to the MAP.

There are clear and often lengthy time limits in which the MAP can be requested. Specifically, the second sentence of Article 16(1) of the MLI provides that the MAP case must be presented within a specific time period, that is shorter than three years from the first notification of the action resulting in taxation, not in accordance with the provisions of a covered tax agreement. This means taxpayers are permitted to present their case within a period of three years from the first notification of the action resulting in taxation, not in accordance with the provisions of the covered tax agreement. The first notification is commonly viewed to be the final assessment at the end of a tax enquiry, or similar.

Furthermore, Article 17(3) of the MLI gives effect to element 1.1 of the Action 14 minimum standard. Access to the MAP is granted for TP cases even where the treaty does not contain Article 9(2) of the OECD Model Tax Convention, especially in those jurisdictions that did not provide access to MAPs in such cases in the past.

Considering MAP resolution, Part VI of the MLI (Articles 18 to 26 inclusive) relates to the mandatory binding arbitration of MAP cases. Several jurisdictions expressed commitment to implement binding MAP arbitration in their bilateral tax treaties at the time of the Final Report. This section is effectively optional.

Specifically, Article 19 of the MLI stipulates mandatory binding arbitration must take place where the competent authorities are unable to reach an agreement to resolve a case within two years of its commencement. This addresses a key limitation with MAP cases historically, given that competent authorities only had an obligation to endeavour to resolve cases, disputes could remain unresolved indefinitely. Article 19 guarantees that treaty-related disputes will be resolved within a specified timeframe, making MAPs a more attractive option for taxpayers. Furthermore, Articles 20 to 25 stipulate how arbitration proceedings should function in practice. In the past, it was often practical constraints, or a lack of agreement about how to proceed, that blocked resolution.

Overall, it is evident the MLI widens access for taxpayers in terms of both extending the period taxpayers have to initiate a MAP to three years, as well as imposing an effective two year time limit for competent authorities to seek to resolve a case (after which time it can be submitted to arbitration). The MLI has led to greater uniformity in the approach on certain key matters such as arbitration, and importantly, a uniform MAP article for covered tax agreements.

It is clear from the OECD's MAP statistics that more taxpayers, faced with increased audits and bilateral tax disputes, are using the MAP process. The MLI has helped to enhance the efficiency and effectiveness of the MAP process, consistent with the intentions expressed in the Final Report 5 years ago.

EU developments

Within the EU, the EU Arbitration Convention entered into force on January 1 1995 as an instrument that promised to enable elimination of double taxation arising between member states. Importantly, it provides a mandatory and binding arbitration mechanism to allow for the elimination of double taxation by reference to the opinion of an independent advisory body if competent authorities cannot reach agreement after two years. This went beyond bilateral treaties that were in place at the time, which only required that competent authorities use their 'best endeavours' to eliminate double tax.

Under the convention, once in arbitration, an opinion of the arbitration panel needs to be delivered within six months, and then the competent authorities have a further six months to agree whether to accept that outcome or to agree on an alternative that eliminates the double taxation.

The Arbitration Convention also enabled taxpayers to present a case to each of the competent authorities of each of the member states concerned, within three years from the receipt of the first notification of the action resulting in the double taxation. In some instances, this allowed cases to be presented that would otherwise have been out of time under then existing bilateral treaty time limits.

The time limits and availability of a mandatory arbitration mechanism in this instrument were welcomed. However, in practice, many stakeholders as well as the EU Commission itself in their review of the instrument recognised that there have been challenges with the application of the convention, including:

  • The scope of the mechanism: The Arbitration Convention is limited to cases of double taxation which arise following the adjustment of profits of associated enterprises in relation to TP and attribution of profits to permanent establishments, which is more limited than the scope of many bilateral tax treaties. This means that some adjustments made by domestic tax authorities that result in double tax may not be addressed by the convention. For example, re-characterisation of a payment as a distribution or re-characterisation of debt as equity.

  • Access to the mechanism: The EU acknowledged that there was a lack of clarity on the terms and conditions for acceptance or rejection of cases. Where a case is rejected by a competent authority, there is no clear pathway for an appeal by a taxpayer.

  • The timing of resolution: The convention does not provide competent authorities with an unambiguous starting point for the countdown of the two year time limit before arbitration becomes available. In some cases, a competent authority would be of the view that the time limit did not start until they had any and all information that they may request available to them, which is itself not a defined milestone. Furthermore, the time limits can be waived with the taxpayer's agreement.

Even where arbitration is sought, the EU review noted that there can be many failings in the system including delay in or absence of establishing the advisory commission and lack of agreement on the appointment of the Chair of the Advisory Commission which delays or prevents the process from proceeding.

In practice, relatively few cases have been through arbitration. Figures published in July 2019 by the EU Joint Transfer Pricing Forum providing that the statistics on pending MAPs under the Arbitration Convention at the end of 2018, showed indicated that there were 932 live cases across the member states; however, only two live cases were in arbitration.

Some may argue that the benefit of arbitration is that the existence of that mechanism gives an incentive to member states to resolve disputes prior to the expiry of the two year time limit, which would be a success rather than a failure of the convention. However, the statistics also show that 202 cases had exceeded the two year time limit, although it had been waived with the taxpayer's agreement. This indicates that taxpayers do not always view the arbitration process available to them under the convention as a desirable route for resolving double taxation.

Recognising these shortcomings in 2017, the Council of the EU issued Directive (EU) 2017/1852 on tax dispute mechanisms in the EU the Arbitration Directive to enable faster and more effective resolution of tax disputes between member states. Under the Arbitration Directive, the process for presenting a case (known as a 'complaint') is similar to that in the Arbitration Convention. However, it addresses many of the shortcomings of the convention through:

  • A wider scope: Covering all disputes arising from the interpretation and application of tax treaties. For example, the very existence of a permanent establishment can be decided as well as attribution of profit;

  • Clearly defined and enforceable time limits: A complaint must be accompanied by prescribed supporting information as specified in the Directive. Competent authorities have three months to request further information, which must be supplied within three months of request. Competent authorities then have a further six months to determine whether they will accept the complaint and can only reject the request on limited grounds which, again, are specified in the Directive.

    If no response is given, the case will be deemed to have been accepted. Competent authorities have six months to decide if they will resolve the dispute unilaterally and then the competent authorities have a further two years to resolve the issue before the taxpayers are entitled to request arbitration. The two year period may be extended to three years if requested in writing by the competent authorities and the reason for the request is considered to be justified. The arbitration process is also subject to a strict timetable, and a decision will be required within 18 months from the time of request;

  • Challenging decisions by member states: To those who refuse access to the mechanism;

  • A role for domestic courts: To oversee adherence to procedural requirements of the mechanism. This includes where member states fail to set up an Advisory Commission, and the Arbitration Directive enables taxpayers to bring a case before its domestic courts to force member states to act.

The Arbitration Directive came into force on July 1 2019 and applies to disputes arising in a fiscal year commencing on or after January 1 2018 although competent authorities of member states may agree to apply the Directive to cases submitted earlier or to earlier fiscal years. The effectiveness of the Directive will be monitored and assessed by the European Union Commission and will be evaluated by June 30 2025.

The Arbitration parts of the Directive have not yet been utilised but the availability of the Directive has been widely welcomed and an effective arbitration mechanism through the Directive is expected to be another key tool in helping taxpayers avoid prolonged uncertainty and costs that result from double taxation. An obvious factor for taxpayers is its application only to intra-EU disputes but it is nevertheless a welcome addition to the instruments that taxpayers may be able to access to resolve double taxation. Observers will watch with interest to see if it delivers on its promise.

To end on a point of topicality, it has been interesting to note that not only are the UK and its former EU member state partners continuing to address ongoing cases under the EU Advisory Commission, but the UK is also a signatory to the EU Directive and this is not expected to change whatever Brexit finally looks like. A sure sign that the UK, like many countries in the international community, takes its obligations seriously when it comes to dispute resolution.

Click here to read the entire 2020 Deloitte/ITR Transfer Pricing Controversy guide

Eddie Morris


Deloitte UK

T: +44 20 7007 6568


Edward Morris specialises in TP dispute prevention and resolution. He has been instrumental in setting up Deloitte's global TP controversy team, consisting of former tax administration personnel and in particular former government competent authorities. This network has a global reach and expertise and helps clients with MAPs, advance pricing agreements (APAs) and TP enquiry resolution.

In his previous career, Edward worked for HMRC as a tax inspector and as UK competent authority, was seconded to the EU Commission, and also attended various OECD working parties concerned with tax treaties, TP matters and permanent establishments.

Edward advises on a wide range of MAPs on both TP and withholding tax issues, APAs, and helps clients across all industry sectors deal with the increasingly complex world of tax disputes. He has appeared consistently in Euromoney's 'Transfer Pricing Expert Guide' since joining Deloitte.

Jennifer Breeze


Deloitte UK

T: +44 20 7007 6543


Jen Breeze is a chartered accountant and chartered tax advisor with more than 13 years of experience specialising in TP at Deloitte. She is part of the global TP controversy network at Deloitte.

Jen is a director in the London TP team and works on complex TP matters for a variety of clients. In addition to designing and supporting robust policies, she has strong working relationships with the specialist MAP and APA team at the HMRC, and has assisted in the effective negotiation of several APAs for Deloitte and resolved double tax through numerous MAPs.

Jen has a first class degree in economics from UCL.

Janelle Sadri


Deloitte Australia

T: + 61 2 9322 7153


Janelle Sadri is a director in Deloitte Australia with more than 13 years of specialist TP experience. She has worked

in Deloitte's Perth, Melbourne and Sydney practices with clients from a wide range of industries, with a particular

focus in the Asia-Pacific region.

Janelle has worked on several major global value alignment/business restructures, IP migration and intra-group financing projects. She is experienced in all facets of TP including planning, controversy and compliance projects, and is a member of Deloitte's global TP controversy network.

Janelle has been instrumental in the negotiation of unilateral and bilateral APAs for taxpayers, and the settlement of significant TP audit cases with the Australian Taxation Office (ATO).

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