Mutual Agreement Procedure Negotiations

A POP can be invoked by taxpayers so that one country, in agreement with the other country, can eliminate cases of double taxation resulting from the actions of the tax administration in the other country. As a result, multinational companies facing cross-border litigation are well advised to proactively consider the use of POPs (as well as other alternative dispute resolution mechanisms, such as bilateral advance price agreements – ASA) when available, while pursuing their options along the usual national channels. In particular, Article 19 of the compulsory arbitration procedure must be mandatory if the competent authorities are unable to reach an agreement on the settlement of a case within two years of their start. This is a significant restriction on POPs cases in the past, as the competent authorities were only required to try to resolve cases and disputes could be resolved indefinitely. Section 19 ensures that treaty disputes will be resolved within a specified time frame, making the MAP a more attractive option for taxpayers. In addition, sections 20 to 25 provide for the practical functioning of arbitration. In the past, it was often practical constraints or a lack of agreement on how to proceed that blocked the solution. What if the tax authorities of these two countries negotiated, on behalf of the taxpayer, an exemption from double economic taxation? The Mutual Agreement (MAP) procedure does so and Canada strongly supports the use of the POP to address economic double taxation issues. How does MAP interact with internal disputes? Even in the event of an arbitration request, the EU review found that there could be many shortcomings in the system, including delays or lack of setting up the advisory committee and the lack of agreement on the appointment of the chairman of the advisory committee that delays or prevents the procedure. In addition, it is important to consider the impact of a national transaction agreement on the possibility of obtaining double taxation relief in the POP process at a later date. The internal resolution of disputes related to cross-border transactions may, in practice, limit the ability of the competent authority, on the other side of operations, to grant facilities for double taxation. This is mainly due to the fact that such comparisons restrict the negotiations of the competent authorities: the position agreed by the taxpayer with one tax authority may not be acceptable to others.