MAP & Arbitration
MAP & Arbitration
When treaty application leads to taxation not in accordance with the convention, the Mutual Agreement Procedure (MAP) provides a mechanism for competent authorities to resolve disputes. Where MAP fails, mandatory binding arbitration may apply.
Art. 25 Overview
Article 25 of the OECD Model Tax Convention establishes the Mutual Agreement Procedure. It allows taxpayers who consider that the actions of one or both contracting states result (or will result) in taxation not in accordance with the provisions of the convention to present their case to the competent authority of the state of which they are a resident.
MAP is distinct from domestic appeals — it is a government-to-government process aimed at resolving double taxation or inconsistent treaty interpretation between two contracting states.
MAP Process
The MAP process involves several stages, from initial filing through to resolution between competent authorities.
Initiation
The taxpayer files a MAP request with the competent authority of their state of residence, presenting the case and the basis for claiming treaty protection.
Preliminary Review
The competent authority evaluates whether the objection appears justified. If so, it attempts to resolve the issue unilaterally or initiates consultations with the other state.
Bilateral Negotiation
Competent authorities of both states exchange position papers and negotiate towards a mutually acceptable resolution.
Implementation
Once agreement is reached, both states implement the resolution regardless of domestic time limits.
Timelines
BEPS Action 14 establishes minimum standards for timely MAP resolution. Countries committed to resolving MAP cases within an average timeframe of 24 months. The OECD monitors compliance through peer reviews.
Taxpayers must generally present their MAP case within 3 years from the first notification of the action resulting in taxation not in accordance with the treaty. Some treaties provide longer filing windows.
Mandatory Binding Arbitration
Where competent authorities are unable to reach agreement through MAP within a specified period (typically 2 years), the unresolved issues may be submitted to arbitration. The arbitration decision is binding on both states, ensuring that taxpayers obtain a definitive resolution.
Arbitration under paragraph 5 of Article 25 uses either the "final offer" (baseball) approach or an "independent opinion" approach, depending on the applicable treaty or MLI provisions.
MLI Part VI
Part VI of the Multilateral Instrument (Articles 18-26) introduces mandatory binding arbitration provisions that can be adopted by signatory jurisdictions. Countries may opt into arbitration and choose between the final-offer or independent-opinion approach.
The MLI arbitration provisions apply where both contracting jurisdictions have opted in, creating a network of treaties with arbitration clauses without the need for bilateral renegotiation.
Filing deadline
MAP requests must typically be filed within 3 years of the first notification of the action giving rise to taxation not in accordance with the treaty.