Transfer Pricing: methodologies: Mutual Agreement Procedure: Access to MAP
The UK will not preclude access to MAP in cases where the issues presented by the taxpayer in that request have already been resolved through an enquiry settlement between the taxpayer and HMRC as there is no administrative or statutory dispute settlement/resolution process in place that allows the UK to deny access to MAP for issues resolved through that process. Applicants should check whether entering into statutory or administrative dispute resolution processes with other tax authorities will prevent bilateral MAP discussions and consider whether doing so is likely to increase the risk of double taxation. In these cases, typically the non-UK Competent Authority may admit the case into MAP but be unable to derogate from a decision reached in its domestic courts or other official administrative or statutory tribunal. In these circumstances the UK Competent Authority will consider granting relief but the likelihood of fully eliminating double taxation is considerably lower than in cases where the MAP involves unfettered bilateral discussion between Competent Authorities.
The UK is aware that some tax administrations may enter into unofficial, non-statutory agreements with taxpayers that waive the right to access MAP as a condition of concluding tax audits. The UK does not consider that access to MAP is restricted in these cases. In practice, the UK Competent Authority will consider granting relief but the likelihood of fully eliminating double taxation is considerably lower than in cases where the MAP involves unfettered bilateral discussion between Competent Authorities.
Self-Assessment Initiated Adjustments
In accordance with the Commentary on Article 25 at paragraph 14 of the Model Convention, the UK will admit bona fide taxpayer self-assessment initiated adjustments into MAP and seek to initiate bilateral MAP discussions with the other Competent Authority in such cases. For example, if a taxpayer is audited by HMRC in year 1, leading to an adjustment and the taxpayer subsequently applies the same principle in years 2 and 3, then the UK CA would consider this self-assessment initiated adjustment in later years to constitute an action for the purposes of MAP.
However, the UK’s transfer pricing legislation does not provide for a taxpayer to make, unilaterally, an adjustment through its accounts and return to obtain corresponding relief for an adjustment which reduces its UK tax liability either when self-assessing or in response to an adjustment imposed by another jurisdiction. The only avenue to relief is presentation of a case invoking MAP.
The UK will admit cases into MAP where the issue for discussion is the application of a treaty anti-abuse provision or whether the application of a UK anti-avoidance provision may conflict with the provisions of the treaty.
Around a third of the UK’s existing treaties contain the equivalent of the second sentence in Article 25(3) of the model treaty, which authorises discussion of cases of double taxation that do not otherwise come within the scope of the treaty. The UK expects that, having signed the MLI with no reservation on the MAP article, this will increase the number of treaties with this provision which enables discussion of a broader range of double taxation issues.
Rejection of MAP Requests
In cases where it appears to the UK Competent Authority that the taxpayer’s MAP request may be invalid, the UK Competent Authority will write to the Competent Authority of the overseas tax administration setting out the reasons why the UK Competent Authority believes the request is invalid and invite the other Competent Authority to provide its views before making a decision on whether to accept or reject the request.