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HMRC internal manual

International Manual

Transfer Pricing: methodologies: Mutual Agreement Procedure: Concluding the MAP


As part of the MAP Process, where an agreement is finalised between the relevant Competent Authorities, the taxpayer is notified in writing of the decision and is provided with an explanation of the result. If the taxpayer accepts the outcome, written confirmation of the agreement is exchanged between the administrations and provided to the taxpayer. The results are processed by the tax administration and relief is obtained.  If the taxpayer does not accept the agreement, then the MAP Process will be deemed to be concluded and no adjustment derived from the MAP Process will be implemented.


Scope for Granting Relief

If the UK Competent Authority concludes that an action has led to taxation not in accordance with the tax treaty (and that the MAP request is admissible and justified) then the UK Competent Authority will first consider if the issue can be resolved on a unilateral basis. In this case, the UK Competent Authority may grant relief, under the provisions of the treaty, without the need to enter into bilateral discussion with the other tax authority.   The UK Competent Authority may be prepared to grant relief unilaterally where the issue under consideration is straight forward and the answer clear cut. If the UK cannot resolve the issue unilaterally, then the UK Competent Authority will take up the matter with their counterpart in the treaty partner state. In practice, most MAP cases will require bilateral discussion between Competent Authorities.


If the UK considers that the adjustment does not accord with the provisions of the tax treaty, for example because it is not satisfied that a transfer pricing adjustment complies with the arm’s length principle, the UK Competent Authority will take up the matter with its counterpart in the treaty partner state.


If discussions between the Competent Authorities provide adequate evidence to satisfy the UK Competent Authority that an adjustment made by the other tax authority is in accordance with the tax treaty, the UK Competent Authority will grant a corresponding adjustment.


In cases where the Competent Authorities can agree that the primary adjustment was excessive (for example, a non-arm’s length amount), they will agree a course whereby the primary adjustment is reduced and the remaining adjustment is relieved in an amount that reflects an arm’s length result. If, however, the Competent Authorities are unable to reach agreement, there is no obligation on the UK Competent Authority to grant unilateral relief and, at the taxpayer’s request, the matter may progress to arbitration if available under the EUAC or if the relevant treaty contains an arbitration article.


Some countries do not consider that the level of capitalisation of a corporate borrower, as opposed to the rate of interest paid on its debt, is an issue involving the arm’s length principle prescribed by the OECD and European Arbitration Conventions. Because these countries do not view thin capitalisation as a transfer pricing issue, the Competent Authority of such countries may be reluctant, or refuse, to enter MAP in respect of such adjustments.


Conversely the UK takes the view that thin capitalisation is an issue requiring application of the arm’s length principle in order to achieve a correct transfer pricing result. To the extent therefore that the cost of funding in question exceeds what the UK considers to be an arm’s length amount, the UK Competent Authority is prepared to enter MAP in respect of adjustments made by an overseas tax authority and will consider whether it is appropriate to give relief unilaterally for any disallowance of interest in excess of an arm’s length amount.


One purpose of tax treaties is the elimination of fiscal evasion and in its considerations the UK will take into account all circumstances surrounding the decision of the other tax authority to make an adjustment, including issues such as the commercial purpose, or otherwise, of the funding provided.