Wouldn’t it be nice if you could complain about tax authority bureaucracy. Now you can, if the complaints relate to failed attempts to apply tax treaty dispute resolution procedures. But hurry, there isn’t much time to file the complaint.
The Background – BEPS:
On October 5, 2015 the OECD published a comprehensive package of measures aimed at multinational corporations, large and small, that engage in BEPS – Base Erosion Profit Shifting. The BEPS package was endorsed by G20 finance ministers on October 8, 2015. Israel is an OECD member.
Action 14 deals with making dispute resolution more effective. This means letting aggrieved taxpayers resort to a mutual agreement procedure (MAP) pursuant to a tax treaty. Certain countries (not Israel) have also agreed to a mandatory binding arbitration procedure.
All OECD countries (including Israel) will be subject to a peer review which will name and shame tax authorities that don’t settle disputes within an average timeframe of 24 months, among other things.
New OECD Documents on Dispute Resolution:
On 20 October, 2016, the OECD released the documents that will form the basis of the Mutual Agreement Procedure (MAP) peer review and monitoring process under Action 14 of the BEPS Action Plan.
The OECD notes that most tax treaties’ MAP clauses are inadequate as they lack arbitration procedures to resolve disputes. Hence the need for “best practices” and peer reviews.
The best practices identified by the OECD include the following: (1) Countries should implement bilateral advance pricing agreement programs (relating to transfer pricing within groups); (2) Countries should have appropriate procedures in place to publish agreements reached by competent tax authorities on difficulties or doubts arising as to the interpretation or application of their tax treaties… (4) Countries should develop “global awareness”; (5) Countries should implement appropriate administrative measures to facilitate recourse to the MAP to resolve treaty-related disputes….(8) Countries should take appropriate measures to provide for a suspension of collections procedures during the period a MAP case is pending.
As for peer reviews, thesew will be conducted in batches, with the first batch commencing in December 2016. The first batch includes Belgium, Canada, the Netherlands, Switzerland, the UK and the USA.
Israel is in the fourth batch, which will come up for peer review by December 2017.
Taxpayer Input Invited:
To help make the peer reviews more effective, taxpayers are invited to complain to the OECD by November 28, 2016 on a “Questionnaire for Taxpayers”. Such complaints may relate to a variety of things occurring or not occurring since the beginning of 2016, such as: access to MAP denied by a tax authority, unclear guidance or lack of guidance about MAP, and whether a MAP agreement was ever reached, communicated and implemented. And there is an opportunity to provide “additional information” about your experiences with the country concerned.
Most taxpayers and their advisors stay away from tax treaty MAP proceedings. It is generally assumed they may take many years and may still yield a negative decision or no decision. So the new MAP safeguards are helpful, but mandatory arbitration would have been preferable, in our view. Time will tell.
As always, consult experienced tax advisors in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.