Transfer Pricing: methodologies: Mutual Agreement Procedure: The MAP process
In the UK there is no set form of presentation of a MAP request. A person should present their case in writing to the UK Competent Authority at the address set out at the conclusion of this Statement.
Multilateral Applications and Multi-year Applications
The UK seeks to work MAP cases in the most effective manner. In appropriate cases, where the relevant treaties allow, the UK will engage with other tax authorities to work MAP cases multilaterally. If the relevant treaty network does not provide a mechanism to work multilateral cases, the UK will seek to work the bilateral cases in a co-ordinated manner and make use of exchange of information powers where this will help resolve the cases efficiently.
Where the UK receives more than one MAP request for the same issue over a number of years, the UK will seek to deal with all the request in a co-ordinated manner.
HMRC requires that sufficient information and documentation is provided to enable the UK Competent Authority to fully assess the request for MAP. A detailed list of the information and documentation requirements in respect of requests under a tax treaty (drawing on the guidance in MEMAP) and requests under the EUAC (set out in paragraph 5 of the Code of Conduct) can be found at INTM 423130.
Specific treaties, however, may state that certain information must be provided before it is accepted that a case has been presented for the purposes of starting the period after which arbitration may be invoked. Other countries may also have more extensive domestic information requirements. It is therefore advisable to consult the relevant tax treaty and any public guidance on the matter provided by the UK’s treaty partner if presenting a case to that partner.
Time Limits for Submitting a MAP Request
In accordance with TIOPA 2010, section 124(1), in order to invoke MAP under a UK tax treaty, it is necessary for a person to present a case showing why taxation has arisen that is not in accordance with the terms of the treaty.
Where MAP is invoked under one of the UK’s tax treaties, TIOPA 2010, section 125(3), requires that a case must be presented before the expiration of:
- the period of 6 years following the end of the chargeable period to which the case relates; or
- such longer period as may be specified in the tax treaty.
The time limit for invoking MAP will therefore depend upon the specific terms of the particular UK tax treaty under which MAP is invoked. In older UK tax treaties the time limit for presenting a case invoking MAP is not addressed, so that the domestic limit of 6 years following the end of the chargeable period to which the case relates applies. In every case, the relevant tax treaty should be consulted, to determine which time limit applies and ensure that the time limit for presenting a case is not missed.
More recent UK tax treaties follow Article 25 of the Model Convention. This provides that a person must present its case ‘within 3 years of the first notification of the action which results or is likely to result in double taxation’. Because the first notification may occur after the expiry of 6 years following the chargeable period to which the claim relates, the relevant tax treaty article may extend the basic 6 year time limit.
For the presentation of a case to the UK Competent Authority under UK tax treaties, the time limit will be interpreted by the UK Competent Authority so as not to disadvantage of the taxpayer. That is, the time limit of 3 years only commences once first notification has been given. It is not necessary to await the first notification before presenting a case to invoke MAP. However, it should be noted that a different view may be taken by the other Competent Authority.
This is made clear in the Commentary which the UK follows when interpreting its own tax treaties. In discussing Article 25, the Commentary states:
- at paragraph 14* ‘It should be noted that the mutual agreement procedure can be set in motion by a taxpayer without waiting until the taxation considered by him to be not in accordance with the Convention’ has been charged against or notified to him - to be able to set the procedure in motion, he must, and it is sufficient if he does, establish that the ‘actions of 1 or both of the contracting states’ will result in such taxation.’*
- at paragraph 21* ‘The provision fixing the starting point of the 3 year time limit as the date of the first notification of the action resulting in taxation not in accordance with the provision of the Convention’ should be interpreted in the way most favourable to the taxpayer - since a taxpayer has the right to present a case as soon as the taxpayer considers that taxation will result in taxation not in accordance with the provisions of the Convention, whilst the 3 year limit only begins when that result has materialised, there will be cases where the taxpayer will have the right to initiate the mutual agreement procedure before the 3 year time limit begins …’*
- at paragraph 23* ‘There may, however, be cases where there is no notice of a liability or the like - in such cases, the relevant time of ‘notification’ would be the time when the taxpayer would, in the normal course of events, be regarded as having been made aware of the taxation that is in fact not in accordance with the Convention’.*
This stage will be marked by the determination of the quantum of the additional profits arising from a transfer pricing adjustment such as in the UK the issue of a closure notice, or the amendment of a return during an enquiry (Finance Act 1998, Schedule 18, paragraphs 30, 31). HMRC considers that at this point, the taxpayer must be aware of the possibility that double taxation may arise and should therefore present a case to protect its position.
Determinations or assessments issued to protect the ability of a tax authority to enquire into a particular year would not be a trigger point for first notification if a closure notice or amendment of return has not been issued for the original enquiry year or years.
Where MAP is invoked under the EUAC, the time limit for presenting a case is determined by Article 6(1) of the EUAC. This uses wording similar to Article 25 of the Model Convention and therefore also provides that a case must be presented within 3 years of the first notification of the action which results or is likely to result in double taxation. The UK applies the same principles to the determination of the date of first notification for EUAC claims as it does for MAP under bilateral tax treaties.