Tax officials crafting plan to jointly identify large multinationals with low risk of tax avoidance

by Julie Martin

Eight countries are working on a new program to jointly review large multinationals’ tax affairs and, if appropriate, provide assurances to the multinational that it will not likely be audited in those jurisdictions with respect to specific tax risks, officials said June 6 in Washington at a conference sponsored by the OECD, USCIB, and BIAC.

The International Compliance Assurance Program or ICAP will be voluntary program designed to benefit multinationals that must file a country-by-country report and do not engage in tax avoidance, said Achim Pross, Head, International Cooperation and Tax Administration Division at the OECD Centre for Tax Policy and Administration.

The program, which will be piloted by Italy, US, UK, Spain, Austria, Germany, Netherlands, and Canada, could eventually be offered by all 47 countries participating in the Forum on Tax Administration, namely, all OECD and G20 countries plus a few others.

Pross said that taxpayers have asked for an opportunity to explain the contents of their country-by-country reports, which will soon be transmitted to multiple tax administrations. At the same time, tax administrations have realized that they may benefit from a multilateral conversation on tax risk assessment.

“Its the idea is that perhaps a number of tax administrations that all otherwise individually would go through a risk assessment process could do that together,” Pross said.

Initially, the ICAP process would be limited to transfer pricing and permanent establishment risks, though more issues could be added in the future.

Pross stressed that the program is completely voluntary for taxpayers. Those electing to participate would be required to submit a packet of information, including an early version their country-by-country report, so timely review can take place and would be given the opportunity to explain their filings.

If the joint risk assessment concludes with a favorable finding, each country involved in the assessment would provide some form of assurance to the multinational taxpayer that the country is unlikely to apply compliance resources to the covered risk.

While ICAP provides some tax certainty, the countries involved do not guarantee that they will not pursue the matter.

“[The ICAP] does not quite get you to where [an advance pricing agreement (APA)] would get you, but it gets you to an in-between de facto low risk stage much faster than an APA would,” Pross said.

Pross said that he envisioned that some multinationals starting with the ICAP would switch to pursuing an APA.

Sharon Porter, IRS Director, Treaty & Transfer Pricing Operations (LB&I), said that the pilot will initially include one country headquartered in each pilot jurisdiction.

Plans for the pilot are moving rapidly, Porter said. The US is now seeking volunteers and hopes to identify its first taxpayer by early July. The program will begin in October.

She said she expects the US will be involved in a significant number of these cases.

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.

Martin 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 Martin

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