Tax dispute resolution via mutual agreement procedure works, mostly, but is still slow

By Doug Connolly, MNE Tax

Around 75% of mutual agreement procedure (MAP) cases concluded worldwide in 2020 – both for transfer pricing and other tax cases – resulted in full resolution of the issue, according to the OECD’s 2020 MAP statistics released November 22. Only 3% of cases were closed with no agreement.

However, reaching a resolution – especially for transfer pricing cases – still takes a while. While resolution of “other” (i.e., non–transfer pricing) cases took on average about 18 months, transfer-pricing cases took nearly twice as long, reaching an average of 35 months. That’s almost a full year past the 24-month goal average timeframe established in OECD standards.

Some countries were faster than others, as recognized in OECD MAP awards announced alongside the MAP statistics. The awards named Switzerland as the fastest to resolve transfer pricing cases, at 20 months on average, followed by Canada (23 months) and the Netherlands (25 months). For other cases, Australia was the fastest at six months, followed by Ireland (seven months) and Luxembourg (10 months).

Certain pairs of countries were particularly successful at resolving disputes together. Based on a scoring of pairs of countries by the number of their fully resolved cases relative to total MAP cases – the pair of Italy and Spain earned the top spot as most effective at reaching resolution for transfer pricing cases. They were followed by the pair of Canada and the US. For other cases, Norway and Sweden scored the top spot for coordinated effective caseload management, followed by the pair of Netherlands and the UK.

Ireland was also recognized in the awards – as “most improved” – for reporting the greatest increase in the number of cases closed with either full agreement or unilateral relief.

Overall, mutual agreement procedure continues to be a popular tool for resolving cross-border tax disputes, although most activity is concentrated in a handful of countries. There were approximately 2,500 new MAP cases started in 2020. However, just 25 jurisdictions accounted for 95% of new cases. Around 40 additional jurisdictions had some level of participation in MAP cases.