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OECD Invites Comments On Dispute Resolution Mechanisms

by Ulrika Lomas,, Brussels

24 December 2014

On December 18, 2014, the Organisation for Economic Cooperation and Development (OECD) published for public comments a discussion draft on base erosion and profit shifting (BEPS) Action 14, on improving the effectiveness of dispute resolution mechanisms.

The discussion draft is the preliminary result of the work done under BEPS Action 14 to identify and develop possible measures to address the obstacles that prevent countries from resolving disputes through the mutual agreement procedure (MAP), including the absence of arbitration provisions in most tax treaties and the fact that access to MAP and arbitration may be denied in certain cases.

The discussion draft recognises the lack of consensus on moving towards universal mandatory, binding MAP arbitration and states that "complementary solutions should be provided which will have a practical, measurable impact, rather than merely providing additional measures or guidance which may not be fully used or implemented."

In the main, the discussion draft states that further work on the subject will be guided by four principles, including ensuring that:

  • Treaty obligations related to the MAP are implemented in good faith;
  • Administrative processes promote the prevention and resolution of treaty-related disputes;
  • Taxpayers can access the MAP when eligible; and
  • Cases are resolved once they are in the MAP.

For each of the above four principles, the discussion draft lists obstacles that may prevent the principle from being fully implemented and puts forward options as to how these obstacles could be addressed.

The discussion draft is to be read in the broader context of the intention to introduce a three-pronged approach designed to represent a step change in the resolution of treaty-related disputes through the MAP. This three-pronged approach would:

  • Consist in political commitments to effectively eliminate taxation not in accordance with the tax treaty (such political commitments reflecting the political dimension of the BEPS project);
  • Provide new measures to improve access to the MAP and improved procedures (the discussion draft describes the envisaged measures); and
  • Establish a monitoring mechanism to check the proper implementation of the political commitment.

The specific measures that will result from the OECD's work on BEPS Action 14 will constitute a "minimum standard" to which participating countries will commit. Notwithstanding this "minimum standard," it is expected that the final outcome will include additional measures (like MAP arbitration) that some countries may also wish to commit to adopt to address obstacles to an effective MAP in a more comprehensive way.

The OECD is to accept responses until January 16, 2015. The draft will be subject to a public consultation at the OECD Conference Centre in Paris on January 23, 2015.

TAGS: tax | investment | business | tax avoidance | revenue guidance | law | Organisation for Economic Co-operation and Development (OECD) | enforcement | agreements | multinationals | tax planning | transfer pricing | G20 | tax reform | standards | regulation | trade | European Union (EU) | Europe | Tax

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