Within the work on BEPS action 14 Make Dispute Resolution Mechanisms More Effective, the OECD recently released the MAP Peer Review Report for the United States.
This report reviews the dispute resolution mechanisms available in the United States to address, among other things, double taxation.
Regarding the main findings, the United States are found to be deficient regarding the following:
“[…] not all treaties are consistent with the requirements of the Action 14 Minimum Standard, as:
- some treaties do not include the full equivalent of 25(2), first sentence, of the OECD Model Tax Convention (OECD, 2015), as for example the sentence relating to providing for unilateral relief prior to the referral of the case to the bilateral phase of the MAP is missing;
- one third of its treaties do not include the full equivalent of Article 25(2), second sentence, of the OECD Model Convention (OECD, 2015) (requiring that mutual agreements shall be implemented notwithstanding any time limits in domestic law), or include wording that might obstruct the implementation of MAP agreements by both treaty partners. None of these treaties include the alternative provisions for Article 9(1) and Article 7(2) to set a time limit for making transfer pricing adjustments; and
- one fourth of its treaties do not include the equivalent of Article 25(3), second sentence, of the OECD Model Tax Convention (OECD, 2015) allowing competent authorities to consult together for the elimination of double taxation in cases not provided for in their tax treaties.” (p. 9 of the Report).
The average time required to resolve any MAP case is 30.87 months for 2016. As such, the Report suggests:
“Although the current available resources for the MAP function in the United States are in principle adequate to manage the influx of new MAP cases, a more adequate use of resources available for the competent authority function may be necessary to achieve a net reduction of its MAP inventory.” (p. 10 of the Report).
It is noteworthy that the number of outstanding cases at the end of 2016 was 963 in the United States in comparison to 228 in Canada whose economy is one tenth in size of the US economy.
In other words, Canada has a long-standing habit of creating double taxation issues through its transfer pricing audit practices.
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