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HMRC internal manual

International Manual

HM Revenue & Customs
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Transfer Pricing: methodologies: Mutual Agreement Procedure: an explanation

What is MAP?

Most double taxation agreements include a mutual agreement procedure (“MAP”) allowing a taxpayer which considers that, as a result of the actions of one or both of the fiscal authorities, it is being taxed otherwise than in accordance with the treaty, to present its case to the competent authority of the state of which it is resident. The treaty empowers that competent authority to consider the point and give corresponding relief to resolve the case without contacting the competent authority of the other state. If the case cannot be resolved unilaterally the competent authorities of both contracting states can consult to endeavour to resolve the case by mutual agreement. This is a process of consultation, not litigation, between the two competent authorities, a government to government negotiation. The taxpayer is not a party to this process, but the extent to which the taxpayer is invited to participate informally, by providing and presenting information, is at the discretion of the competent authorities. Where there is no treaty between the UK and the other state there can be no mutual agreement procedure.

It is very important to realise that MAP does not guarantee the elimination of double taxation. The treaty says that the competent authorities will “endeavour” to do so. In the vast majority of cases this is achieved but there is no guarantee. It is perfectly possible that each competent authority will believe (and have very good reasons for believing) that the arm’s length price is different and this will result in unrelieved double taxation ; this is only likely to happen in extreme circumstances. However, the MAP Article in the OECD Model Tax Convention (Article 25) includes a provision for referring issues which are not agreed to arbitration and the UK is looking to introduce a similar provision into its Treaties. As a result, going forward, the possibility of competent authorities being unable to eliminate double taxation will be significantly reduced.

All requests for assistance under the mutual agreement procedure are dealt with by a competent authority at CTIAA Business International, Transfer Pricing Team. Further information, guidance and contact details are set out in Statement of Practice (“SP”) 1/11 “Transfer pricing, Mutual Agreement Procedure and Arbitration”, the text of which is reproduced at pages INTM423040 onwards.

HMRC issued SP 1/11 in February 2011. The SP is intended as a general statement of the UK’s practice regarding methods for reducing or preventing double taxation, and also includes details of how HMRC operates MAP. The publication of SP 1/11 did not mark a material change in HMRC’s approach to MAP.