Mutual Agreement Procedures (MAP) and Tax Treaties benefit grant General Rules under public consultation in Dominican Republic

By José Rafael Monsalve, Transfer Pricing Economist and International Tax Advisor, Dominican Republic

On May 26, 2022, the Dominican Tax Administration (General Directorate of internal Revenue) released for public consultation two general rules to improve the application and control of double-tax treaties in the Dominican Republic. Currently the Dominican Republic has two double-tax treaties in force:

1. Convention Between Canada and the Dominican Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital (1976), and
2. Convention Between Spain and the Dominican Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (2011).

The Ministry of Finance of the Dominican Republic has delegated its authority for the application of tax treaties to the Dominican Tax Administration. The general rules are the following:

General Rule on Double-tax Treaties benefits grant

This draft rule highlights that the benefits of the tax treaty will be available only to taxpayers that prove they are resident of one of the contracting states of the tax treaty and comply with the provisions of the treaty. If the benefits of the treaty are available to the taxpayers, they will be provided in the form of reimbursement of the tax in accordance to the procedure established by the tax administration.

The draft rule’s proposed process begins with the filing of written communication after the return is filed or the tax affected by the treaty is paid. The written communication must include at least:

1. full name, address and Tax ID of the person doing the request
2. formal description of intention to apply the treaty
3. proof of residence
4. indication of articles of the treaty to be applied
5. identification of fiscal years affected
6. descriptions and evidence regarding the type of business and transaction performed subject to the treaty, including corresponding documentation

The written communication and documentation will be reviewed by the tax administration within 10 working days of the filing. If additional information is requested, the taxpayer has 15 days to turn it in.

Once the request is reviewed, the tax administration issues an opinion and if the request is approved, a certification, which could be used to request an amended return (the amendment of any return must be approved by the tax administration), is issued and after that the corresponding reimbursement.

General Rule on Mutual Agreement Procedures

This draft rule explains that in the event that a Dominican resident, for tax- treaty purposes, is not subject to taxation in accordance to the tax treaty, it can submit its case to the Dominican competent authority within the timeframe established in the treaty.

During the next 30 working days, the Dominican competent authority will review the case and documentation and could request additional information or clarification, if necessary, within a timeframe of 20 working days.

The mutual agreement procedure can be rejected if:

1. there is not a tax treaty related to the procedure
2. the case is submitted out of the timeline defined in the treaty or by an unauthorized person
3. the case is a matter of domestic law and not a matter of treaty application
4. there is evidence that the taxpayer is trying to avoid taxation in one of the contracting States
5. the matter was already addressed in a previous mutual agreement procedure
6. the matter was already solved in a court in the Dominican Republic
7. there is no evidence that the measures adopted, by one or both contracting States, are not according to the treaty 
8. the matter is not related to a tax covered by the treaty.

If the matter cannot be solved unilaterally, the Dominican competent authority will notify the competent authority of the other contracting state. A position paper is sent within the four months after receiving the request, and their information, documentation, and position papers would be exchanged between the two competent authorities. In the process, the Dominican competent authority can also request information to the person that submitted the case.

The mutual agreement procedure can be terminated by the taxpayer, by the Dominican competent authority in the case of unilateral solution, or by agreement between both competent authorities. However, the decision could be no elimination of double taxation because of the statute of limitations, different interpretations of the two competent authorities, lack of information or documentation, or acceptance of the agreement between the competent authorities from the taxpayer side. In the event of an agreement between competent authorities, it will be formalized by notes exchanged.

In summary, these two general rules will put the Dominican Tax Administration in a better position to control the proper application of its tax treaties. They also help to provide tax certainty, as taxpayers have the assurance that treaties will be applied in a consistent manner and dispute resolution will be available through mutual agreement procedures ratified in the tax treaties.   

—José Rafael Monsalve is a Transfer Pricing Economist, considered by the Expert Guides of Euromonitor as one of the World’s Transfer Pricing Leading Advisors and invited as instructor and lecturer by different technical, academic institutions and unions.  He has assisted corporations, businesses and public institutions of the consumer goods, industrial products, financial institutions, services and energy sectors in the analysis and documentation of intercompany transactions.

He is currently a Transfer Pricing and International Taxation Adviser at the General Directorate of Internal Taxes (DGII) in the Dominican Republic and previously, he was a member of PricewaterhouseCoopers (PwC) for almost two decades in Venezuela, New York, Central America and the Dominican Republic.

The views and opinions expressed in this article are solely of the author and do not constitute any type of tax advice.