The Organisation for Economic Co-operation and Development (OECD) recently published statistics on mutual agreement procedure (MAP) cases for 2018. The MAP articles of bilateral tax treaties permit taxpayers potentially subject to double taxation or taxation otherwise not in accordance with the applicable treaty to request that the competent authorities of the treaty partners consult to eliminate such taxation. Ensuring the effectiveness and efficiency of MAP processes is an important component of Action 14 of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative.
The year 2018 saw global MAP inventories decrease by 319, from 6,924 cases on January 1 to 6,605 cases as of December 31, with 2,385 cases initiated and 2,704 cases closed in 2018. However, processing times remain lengthy. While Action 14 includes an aspirational 24-month timeframe for resolving MAP cases, transfer pricing cases in MAP took on average 33 months to resolve in 2018, up from 30 months in 2017.
Overall, 80% of MAP cases were resolved successfully – that is, with an agreement completely or partially eliminating the contested taxation, or with unilateral relief or the application of a domestic remedy. However, some categories under the OECD statistics convey data on cases that generally are not meritorious and/or are not pursued by the taxpayer. These categories are “denied MAP access,” “objection is not justified,” “withdrawn by taxpayer,” and “agreement that there is no taxation not in accordance with tax treaty.” For instance, a taxpayer may be denied MAP access because it fails to comply with specified procedural requirements and deadlines. When one eliminates these unmeritorious cases, the success of MAP becomes much clearer: approximately 96.4 percent of all cases result in a successful outcome, and only about 2.4 percent of those cases involved partial relief. This means that taxpayers who have a legitimate grievance and take care to comply with procedural requirements will very likely succeed in eliminating double taxation.
For 2018, the US began with 1,005 MAP cases in its inventory, and ended with 1,007, for an increase of just two cases. While the US MAP inventory remained static overall, the split between transfer pricing cases and other MAP cases shows a more significant change: transfer pricing cases fell from 694 to 670 cases, while other non-pricing cases rose from 311 to 337. As with the overall OECD statistics, processing times in the US continue to exceed the 24-month goal. According to an OECD peer review of US compliance with Action 14, US transfer pricing cases took 27.2 months on average for the years 2016-2017, and other cases took 27.0 months on average.
Still, the US competent authority remains very effective. For 2018, 97.7% of meritorious cases involving the US resulted in a favourable outcome. Specifically, 98.6% of meritorious US transfer pricing cases were resolved with success, as were 95.2% of other cases. Moreover, while the overall success of US MAP cases in 2018 was similar to 2017, the 2018 data shows that the US competent authority resolved significantly more transfer pricing cases via bilateral agreement, rather than by a grant of unilateral relief. While working within the timeframes set out in BEPS Action 14 poses challenges, MAP cases involving the US continue to provide an important avenue for taxpayers seeking to eliminate double taxation.