OECD releases “stage 2” reports on tax dispute resolution in US, UK, Belgium, Switzerland, Canada, Netherlands

August 14, 2019 Americas, Belgium, Canada, Europe, Featured News, Inclusive Framework on BEPS, Multinational, OECD, Switzerland, The Netherlands, Transfer Pricing, United Kingdom, United States
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By Julie Martin, MNE Tax

The OECD on August 13 published six “stage 2” peer review reports assessing whether the United States, United Kingdom, Belgium, Switzerland, Canada, and the Netherlands, are improving their cross-border tax dispute resolution procedures.

The reports address whether the countries adopted recommendations made in stage 1 peer review reports which were published by the OECD in September 2017. The peer reviews aim to encourage each country to align their laws, tax treaties, and practices with the Action 14 minimum standards agreed to by OECD and G20 countries in 2015 as a result of the base erosion profit shifting (BEPS) plan.

“The results thus far demonstrate positive change across all six jurisdictions,” the OECD concluded.

The six reports were approved on May 8 by the OECD-led “Inclusive Framework on BEPS,” a coalition of more than 130 countries working together to improve the international tax system. The reports address the countries’ practices in 2016–17.

US slow to close MAP cases

The reports reveal that the US was the only country of the six assessed that did not meet a recommended 24-month average timeframe to close mutual agreement procedure (MAP) cases during  2016–17. The average time to close a US MAP case was 27.17 months.

During the period, the Netherlands was the most timely, closing cases on average within 15.63 months. The UK and Belgium were not far behind, closing MAP cases, on average, in 15.95 months and 15.92 months, respectively. According to the data, Switzerland closed cases during the period, on average, in 20.96 months and Canada closed cases in 20.91 months.

All six countries either maintained or reduced the amount of time it took to complete a MAP case as compared to the earlier period, the OECD observed.

Open inventory

According to the six reports, the US had the most unresolved MAP cases as of December 31, 2017. As of that date, 983 US MAP cases were pending with 676 being attribution or allocation cases.

Belgium was not too far behind, with 738 cases outstanding though only 83 were allocation or attribution cases. The UK  had 457 cases in ending inventory with 252 being allocation or attribution cases; Switzerland had 338 cases pending with 117 being attribution or allocation cases; Canada had 301 cases pending with 141 being allocation or attribution cases; and the Netherlands had an ending inventory of 350 cases with 118 attribution or allocation cases.

Missing tax treaty provisions

The OECD noted that all six countries were missing provisions in some of their bilateral tax treaties that are needed to fully meet the Action 14 minimum standards.

Each country had some tax treaties that omitted a recommended provision stating that mutual agreements shall be implemented notwithstanding time limits in domestic law or an alternative provision setting a time limit for making transfer pricing adjustments. The provisions were missing in 80 percent of Swiss tax treaties, 75 percent of UK tax treaties, 70 percent of Canadian tax treaties, more than 50 percent of Belgium tax treaties, 33 percent of US tax treaties, and 25 percent of Netherlands tax treaties.

The OECD noted that several countries’ tax treaties do not provide that competent authorities should consult to relieve double taxation in cases not provided in the treaty. This provision was missing in 25 percent of US tax treaties, 60 percent of UK tax treaties, and one Belgium tax treaty.

Some tax treaties also lacked the equivalent of Article 25(1) of the OECD Model Tax Convention regarding the right of a taxpayer to make a MAP request to the country where the taxpayer is a national or regarding the three-year time-limit for filing MAP requests. Conforming provisions were absent in almost 20 percent of Belgian tax treaties, 10 percent of Switzerland tax treaties, 10 percent of Netherlands treaties, and more than 70 percent of Canada’s tax treaties.

The OECD report also said that 25 percent of the US’s tax treaties do not include provisions offering unilateral relief before the referral of a case to the bilateral phase of MAP.

Further, OECD also said that since its last report, some jurisdictions updated or clarified issues in their MAP guidance and some have added MAP personnel.

Julie Martin

Julie Martin

Founder & Editor at MNE Tax

Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.

Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.

Julie can be reached at [email protected].

Julie Martin
Julie can be reached at [email protected].