OECD Work on Dispute Resolution OECD- India IFA Branch Mumbai 24-25 January 2008

1. OECD Work on Dispute ResolutionOECD- India IFA BranchMumbai24-25 January 2008 Mary Bennett Head of Tax Treaty, Transfer Pricing & Financial Transactions Division OECD Centre for Tax Policy and Administration Jacques Sasseville OECD Tax Treaty Unit

2. Resolving International Tax Disputes • Major concern for business and government • Disputes have increased in number and complexity… this trend will continue • Need a more effective procedure to resolve disputes

3. OECD Efforts to Improve Dispute Resolution Procedures • Established Joint Working Group (JWG) on Dispute Resolution • Significant public consultations, surveys, research done and drafts published over 4 years • February 2007 -- Final Report published • The key to resolving cross-border tax disputes between tax administrations is the mutual agreement procedure: this is the only available State-to-State procedure

4. OECD Results Arbitration added to MAP – mandatory, binding arbitration of MAP cases unresolved after 2 years Changes to the OECD’s Model Tax Convention’s Article 25 Commentary -- to incorporate proposals for improved MAP operation Manual on Effective Mutual Agreement Procedures (MEMAP) -- to explain MAP and describe best practices for tax authorities and taxpayers

5. Improving Dispute Resolution Mechanisms • Next steps: • Final Report’s recommendations to be incorporated into 2008 Update to OECD Model Tax Convention • OECD Member countries have agreed to publish MAP statistics annually on OECD website • Arbitration provisions are gradually being incorporated into bilateral treaties

6. MEMAP MEMAP (Manual on Effective Mutual Agreement Procedure) • Included in the conference documentation • Updates on www.oecd.org/ctp/memap • Provides general background on MAP • Sets out non-binding guidelines for “best practices” by competent authorities and taxpayers • Encourages transparency, timeliness, broad access, principled approaches

7. MEMAP Best Practices • Best Practice Nº1: Resolving and publishing issues of interpretation or application • Best Practice Nº2: Robust use of Article 25(3) power to relieve double taxation • Best Practice Nº3: Principled approach to resolution of cases • Best Practice Nº4: Transparency and simplicity of procedures for accessing and using the MAP • Best Practice Nº5: Providing complete, accurate, and timely information to the competent authorities • Best Practice Nº6: Allowing electronic submissions

8. MEMAP Best Practices • Best Practice Nº7: Allowing early resolution of cases • Best Practice Nº8: Earlier notification of a potential case • Best Practice Nº9: Liberal interpretation of time limits and advising of treaty rights • Best Practice Nº10: Avoiding exclusion from MAP relief due to late adjustments or late notification • Best Practice Nº11: Consideration of MAP assistance for cases described as “tax avoidance”

9. MEMAP Best Practices • Best Practice Nº12: Countries eliminate or minimize “exceptions” to MAP • Best Practice Nº13: Taxpayer presentations to competent authorities • Best Practice Nº14: Cooperation and transparency • Best Practice Nº15: Face-to-face meetings between competent authorities • Best Practice Nº16: Bilateral process improvements • Best Practice Nº17: Decision summaries • Best Practice Nº18: Recommendation for MAP cases beyond two years

10. MEMAP Best Practices • Best Practice Nº19: Avoid blocking MAP access via audit settlements or unilateral APAs • Best Practice Nº20: Interest relief • Best Practice Nº21: Suspension of collections during MAP • Best Practice Nº22: Readily available access to a competent authority • Best Practice Nº23: Independence and resources of a competent authority • Best Practice Nº24: Performance indicators for the competent authority function and staff • Best Practice Nº25: Implementing and promoting ACAP and bilateral APA programs

11. Arbitration Provision Added to OECD Model “5. Where, a) under paragraph 1, a person has presented a case to the competent authority of a Contracting State on the basis that the actions of one or both of the Contracting States have resulted for that person in taxation not in accordance with the provisions of this Convention, and b) the competent authorities are unable to reach an agreement to resolve that case pursuant to paragraph 2 within two years from the presentation of the case to the competent authority of the other Contracting State, […]

12. Arbitration Provision Added to OECD Model any unresolved issues arising from the case shall be submitted to arbitration if the person so requests. These unresolved issues shall not, however, be submitted to arbitration if a decision on these issues has already been rendered by a court or administrative tribunal of either State. Unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision, that decision shall be binding on both Contracting States and shall be implemented notwithstanding any time limits in the domestic laws of these States. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this paragraph.

13. Main features • Mandatory, binding arbitration of unresolved issues in Article 25(1) cases after 2 years of MAP • Arbitration is part of the mutual agreement procedure, not an alternative recourse • No arbitration of issues on which competent authorities agree • Relationship with recourse to domestic courts • Implementation of the decision through a mutual agreement • OECD recognises that not all countries are in a position to include arbitration in their treaties

14. Procedural aspects • Flexible - mode of application left to mutual agreement of Contracting States • Detailed Commentary on the provision • Sample mutual agreement on procedural aspects • Two main types of procedure • Normal procedure • Streamlined procedure

15. Improving Dispute Resolution Mechanisms Other changes to Article 25 Commentary: • Clarify time limitations for invoking MAP • Clarify triggers for MAP access • Clarify (and limit) grounds for denying access • Encourage suspension of collection during MAP • Encourage appropriate treatment of interest and penalties • Encourage use of MAP to make corresponding adjustments • Clarify relationship with domestic law, to encourage full use of MAP