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The Importance of Dispute Avoidance and Resolution Mechanisms: Domestic and international

The Importance of Dispute Avoidance and Resolution Mechanisms: Domestic and international. Konrad Szpadzik specialist in APA Unit Direct Taxes Department. Double taxation. Double taxation is the levying of tax by two or more jurisdictions on the same declared income

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The Importance of Dispute Avoidance and Resolution Mechanisms: Domestic and international

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  1. The Importance of Dispute Avoidance and Resolution Mechanisms: Domestic and international Konrad Szpadzik specialist in APA Unit Direct Taxes Department

  2. Double taxation Double taxation is the levying of tax by two or more jurisdictions on the same declared income Legal double taxation - two countries levy tax on the same income of the same taxpayer (source vs. residency) Economic double taxation refers to the taxation of two different taxpayers with respect to the same income (or capital)

  3. Transfer pricing disputes State A State B price 500 new price 300 Income 2000 Income 1000 Income after audit 2200 200 WAS TAXED TWICE

  4. Transfer pricing disputes DISPUTE

  5. Why avoid? Costs: • meetings (with taxpayers, other TA’s), • travels, • collecting information from taxpayer and local tax units, • independent experts, analysis, translations, • labour costs Time: • exchange of correspondence between TA’s, • cooperation with local tax units, • attitude of second TA, • cooperation with taxpayer

  6. Tools • OECD: • Model Tax Convention on Income and on Capital, • Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, • current work (WP6 TPI), • European Union: • Convention 90/436/EEC on the elimination of double taxation in connection with the adjustment of transfers of profits between associated undertakings, • Joint Transfer Pricing Forum (JTPF) reports. • United Nations: • UN Model Tax Convention, • Transfer pricing practical manual for developing countries.

  7. How to resolve? • Double tax agreements: • Mutual Agreement Procedure (art. 25 of OECD MK), • Exchange of information (art. 26 of OECD MK). • Poland has 89 DTAs. • EU Arbitration Convention: • Poland since 2007

  8. Arbitration Convention The case must be presented within three years of the first notification of the action which results or is likely to result in double taxation If the CA is not itself able to arrive at a satisfactory solution, shall endeavour to resolve the case by mutual agreement with another CA If the CAs fail to reach an agreement within two years of the date on which the case was first submitted, they shall set up an advisory commission charged with delivering its opinion on the elimination of the double taxation in question.

  9. Advisory commission • The advisory commission shall consist of: • its Chairman, • two representatives of each competent authority concerned, • an even number of independent well known authority to be appointed by: • mutual agreement from the list of persons or, • in the absence of agreement, by the drawing of lots by the competent authorities concerned.

  10. Advisory commission The advisory commission shall deliver itsopinion not later than six months from the date on which the matter was referred to it. The advisory commission shall adopt its opinion by a simple majority of its members. The costs of the advisory commission procedure,shall be shared equally by the Contracting States concerned. The CAs may take a decision which deviates from the advisory commission's opinion. BUT If they fail to reach agreement, they are obliged to act in accordance with that opinion.

  11. Polish perspective Meetings – the best way to shorten the procedure! Around 13 arbitrations in progress Couple cases already resolved Increased interest in this procedure amongst taxpayers Almost all TP cases conducted on the basis of the convention Faster procedure than MAPs MAP – CAs shall endeavour to resolve the case Arbitration – CAs have to resolve the case No advisory commission yet Most cases with Germany

  12. How to prevent? Advance Pricing Agreements Well-prepared TP documentation

  13. APA in Poland APA regulations in Poland since 2006 Unilateral, bilateral and multilateral APAs APA as an administrative decision Time limits to issue a decision 6 months for unilateral APA, 12 months for bilateral APA and 18 months for multilaterals. APA application fee - 1% of the value of a transaction with certain limitations Preliminary meetings before application Possibility of prolonging, changing or revoking an APAs Monitoring of APA

  14. Taxpayer’s perspective • APA are viewed by taxpayers as a positive option • increases security of investments, • attracts investments in the country, • promotes stability of operations • No need of audit to establish the correct transfer pricing • Increased interest in bilateral and multilateral APAs • amongst taxpayers • Unilaterals = shorter procedure • Bilaterals and multilaterals = higher certainty

  15. Statistics

  16. What we need? Cooperation Sharing knowledge Learning one another’s approach Meetings, trainings, workshops (case studies)

  17. Thank you for your attention Konrad Szpadzik 12 Swietokrzyska St. 00-916 Warsaw tel.: +48 22 694 48 87 fax :+48 22 694 33 31 Email: Konrad.Szpadzik@mofnet.gov.pl www.mf.gov.pl

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