P JANUARY FEBRUARY 2002 sion of the IFA Congress on the allocation for tax purposes 2.1.5. The MAP is transparent of expenditure in the case of international arm s-length In 1993 the Federal Ministry of Finance published a leafle transactions, that every effort should be made to rende on the MAP. This leaflet was updated in 1997. It mainly mutual agreement procedures more effective. The rappor- gives guidance to taxpayers on the procedural aspects of teur-general on mutual agreement procedure at the 1981 the map to be observed FA Congress concluded that the mutual agreement proce dure was a suitable means of settling international tax dis- 2.1.6. Ease in applying t for a MAP putes where the provisions of applicable income tax treaties were insufficient. Among other things, national The objective of a MAP is to ascertain the taxpayer's gislatures were called upon to ensure that claim to be taxed in accordance with the provisions of an it should be possible for mutually agreed solutions to applicable income tax treaty. The opening of the MAP the benefit of the taxpayer to be implemented irrespec- requires the taxpayer to make reasonably clear that the tax tive of any time-limits imposed by national law. The payer is faced with a taxation not in accordance with treaty initiation of a mutual agreement procedure should sus- provisions. The MAP will be carried out on behalf of the pend the running of such time-limits interests of the taxpayer. insofar the taxpayer's coopera the interpretation of provisions of an applicable tion is needed. No special type of documentation is income tax treaty as settled by mutual agreement pro- required in order for the competent authority(hereinafter cedure should supersede the definitions set out in the CA)to open a MAP. The opening of a MAP takes the form domestic law of a treaty signatory; and of a written notification to the competent authority of the mutual agreement procedures designed to eliminate other country loopholes should be given statutory force by imple- With respect to transfer pricing MAPs have not necessar- mentation into domestic law ly to be initiated by parent companies. However, German It was further stated that the time taken for a mutual agree- guidelines suggest that for practical reasons MAPs should ment procedure would have to be reduced. In cases where be initiated in the country of the superior taxpayer (i.e. the no agreement could be reached by this procedure between parent company ) As to sister companies, either company the contracting parties, the possibility of referring the dis- may initiate the procedure, although it may be necessary, pute to an arbitration body should be introduced however, to include the country of the parent company. In the author's opinion, it is recommended to initiate the Much time has since elapsed. It must be asked. therefore, MAP in the country in which the tax authorities will most whether there has been any fundamental improvement in likely agree with the arguments of the taxpayer Loss situ mutual agreement procedures since that time. As long ago ations may raise the the question of whether the Ca has as 1987. the International Chamber of Commerce pub- ithority to deal with loss-loss cases; it may be argued that lished a paper on basic issues related to mutual agreement there is no double taxation to be resoived. However,dou procedures, specifying once again the shortcomings of ble taxation may occur because of the availability of loss such procedure and pressing for appropriate action to be carry-overs. Hence, depending on the circumstances, the taken. The OECd had already taken a stand in 1984 in a report on mutual agreement procedures and dealt with the taxpayer may be entitled to request a MAP. issue once again at some length in its 1995 Transfer Pri- 2.1.7. Time limits generally will not hinder a MAP cing Guidelines. While the guidelines address the existing problems in considerable detail, they fail to make any fun- Provided that the applicable treaty itself does not specify a damental progress on the 1984 position, confining them- time limit, claims for competent authority consideration selves as before to mere calls for action are generally accepted within four years after notification detailed auditing of transactions, especially those of inter- in accordance with treaty provisions is the decisive event nationally affiliated enterprises, there has been no signifi- for the time limit to run, the claimant will usually not be While there has been no great improvement in the legal Lime-barred in making its claim. If the CA concludes that cant increase in the number of mutual agreement cases. a transfer pricing adjustment should be withdrawn instead status of the taxpayer, the procedure has nevertheless of being dealt with in a MAP. the issue will be discussed become more transparent in many countries. The call for with the local tax authorities the publication of decisions that could be of benefit to other taxpayers should be upheld, provided that the tax- As soon as a MAP has been opened, any appeal proce- payers interests are protected and, in particular, the tax dures will usually be suspended. In this regard. the MAP is secrecy requirement is observed. Speeding up the proce- not legally but practically linked with a judicial claim dure, though desirable, will invariably come up against Any agreement reached between competent authorities practical difficulties. These are not only the shortage of will be implemented without regard to the stage of any staff in national tax authorities but also the differences in court proceeding under domestic law. However, if an organization and procedure and the need for translations in appeal is still pending, the taxpayer is required to declare most cases the withdrawal of the appeal. A CA agreement may be tion on the Law of Treaties of 23 May 1969. @2002 International Bureau of Fiscal Documentation