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International Manual

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Transfer Pricing: methodologies: Mutual Agreement Procedure: SP1/11: time limits

Statement of Practice 1/11: time limits

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 (S124(1) TIOPA 2010, formerly S815AA(1) ICTA 1988). To invoke MAP under the Arbitration Convention it is similarly necessary to present a case showing that the arm’s length transfer pricing principles set out in Article 4 of that Convention have not been observed.

Where MAP is invoked under one of the UK’s tax treaties, such a case must be presented before the expiration of:

  • the period of six 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 for claims after 27 July 2000. See S125(3) TIOPA 2010, formerly S815AA(6) ICTA 1988.

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 six years following the end of the chargeable period to which the case relates applies. More recent treaties do address the issue. In every case, the relevant tax treaty should be consulted, but generally UK tax treaties follow Article 25 of the OECD Convention. This provides that an enterprise must present its case “within three years of the first notification of the action which results or is likely to result in double taxation” (first notification). Because the first notification may occur after the expiry of six years following the chargeable period to which the claim relates, the relevant tax treaty article may thus extend the basic six year time limit.

Where MAP is invoked under the Arbitration Convention, the time limit for presenting a case is determined by Article 6(1) of the Arbitration Convention. This uses wording similar to Article 25 of the OECD Convention and therefore also provides that a case must be presented within three years of the first notification of the action which results or is likely to result in double taxation.

It should be noted that in the presentation of a case under UK tax treaties and the Arbitration Convention the time limit is interpreted to the advantage of the taxpayer. That is, the time limit of three 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.

This is made clear in the Commentary on the OECD Convention 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 one or both of the Contracting States” will result in such taxation.”

at Paragraph 21 “The provision fixing the starting point of the three 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 three-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 three 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.”