By Viktoriia Bublichenko, Attorney at law, GOLAW, Kyiv
The ministry of finance of Ukraine established the detailed order of conduct of the mutual agreement procedure (MAP) for resolving international tax disputes in a decree that entered into force on March 26. Now that the rules have been adopted, taxpayers may apply to the MAP program to resolve disputes.
The MAP was earlier introduced into the tax code of Ukraine as part of 2020 tax reform aimed at aligning Ukraine’s tax laws with the OECD/G20 base erosion and profit shifting (BEPS) action plans, including Action 14 on making dispute resolution mechanisms more effective.
MAP initiation in Ukraine
In general, MAP is a procedure aimed at protecting taxpayers from tax authorities incorrectly applying international tax treaties to their international transactions.
The tax code establishes that if Ukrainian persons or non-residents consider that certain actions or decisions of the Ukrainian or a foreign tax office might lead to taxation contrary to the respective tax treaty, they may apply to the Ukrainian ministry of finance to initiate MAP.
If the application is accepted, the Ukrainian ministry of finance will contact the foreign competent authority under the respective tax treaty to conduct negotiations on the specific tax case and seek a mutual decision regarding it.
MAP may also be initiated by the tax office itself. The tax office may do this to address ambiguity or differences in the interpretation or application of tax treaties, or to carry out consultations on double taxation in cases not directly covered by the tax treaties.
Key advantages and benefits of MAP
MAP provides an opportunity for foreign tax specialists to express their opinion on certain tax matters. This may contribute to a more reasonable and comprehensive consideration of a tax case.
MAP may be carried out either before a tax inspection or after it.
If MAP is carried out before a tax inspection, MAP may provide the applicant with the official position of the competent authorities on a certain matter of the applicant’s international taxation, and, if such position is positive for the taxpayer, the applicant may use that position within the tax inspection of that matter.
In the case of MAP carried out after a tax inspection, the MAP may be initiated after the administrative appeal procedure ends if its results are not in favor of the taxpayer. Thus, taxpayers will be able to appeal the findings of the tax inspection related to international taxation by initiating MAP. If the taxpayer disagrees with the conclusions of MAP, it may still appeal the results of the tax inspection to the court. This provides the taxpayers a range of tools to protect their rights under the tax treaties.
Furthermore, if an application for MAP is filed after a tax inspection, a decision of the tax office imposing an additional tax assessment related to the issues raised in the application shall be deemed “non-agreed” until the end of MAP. This means that while MAP lasts, no payments under such decision need to be made. Moreover, if the MAP outcome is in favor of the applicant in full or in part, the tax office will be obliged to cancel its decision on the additional tax assessment.
In general, tax authorities cannot make decisions contrary to the agreements reached in MAP regarding the specific taxpayer.
Limitations and restrictions of MAP
The MAP may be initiated only if such a right is granted by the respective tax treaty.
MAP cannot be initiated regarding certain tax issues while the administration of judicial appeals concerning the same matter is in progress.
Also, the specific results of MAP apply only to the taxpayer and reporting period involved. The MAP results cannot be applied to other taxpayers or reporting periods not covered.
Application requirements and refusal of consideration
The decree of the ministry of finance establishes that the MAP application must contain information regarding the applicant, a detailed description of the circumstances demonstrating a violation of rights under the tax treaty and the specific provisions of the tax treaty subject to MAP, as well as certain other important information relating to the case.
The decree also requires documentary support of the applicant’s position on the violation.
It is important to properly prepare the application. An application’s inconsistency with the requirements could cause the competent authority to refuse to accept it for consideration.
There are also other grounds for a MAP refusal. A refusal may result from the applicant not providing documents or explanations asked for by the competent authority in time.
MAP applications may also be refused because the issues raised in the application are addressed either in ongoing administrative or judicial appeals or in an existing court decision. MAP applications may also be refused due to the absence of violation of rights of the taxpayer under the tax treaty. This ground for refusal could potentially cause problems for taxpayers in accessing MAP. That is because at this stage the competent authority could, without a precise analysis of the factual background and the documents of the case, state that it does not see any violations of the tax treaty and refuse to accept the application.
MAP is a new procedure for Ukraine. Thus, only time and practice will reveal the scope of factual problems that taxpayers may face within the course of MAP and the best ways to minimize them.
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