Author: OECD

TPG2022 Chapter VI Annex I example 14

TPG2022 Chapter VI Annex I example 14
46. Shuyona is the parent company of an MNE group. Shuyona is organised in and operates in country X. The Shuyona group is involved in the production and sale of consumer goods. In order to maintain and, if possible, improve its market position, ongoing research is carried out by the Shuyona group to improve existing products and develop new products. The Shuyona group maintains two R&D centres, one operated by Shuyona in country X and the other operated by Company S, a subsidiary of Shuyona operating in country Y. The Shuyona R&D centre is responsible for the overall research programme of Shuyona group. The Shuyona R&D centre designs research programmes, develops and controls budgets, makes decisions as to where R&D activities will be conducted, monitors the progress on all R&D projects and, in general, controls the R&D function for the MNE group, operating under strategic ... Read more

TPG2022 Chapter VI Annex I example 13

TPG2022 Chapter VI Annex I example 13
42. The facts in this example are the same as those set out in Example 10 with the following additions: At the end of Year 3, Primair stops manufacturing watches and contracts with a third party to manufacture them on its behalf. As a result, Company S will import unbranded watches directly from the manufacturer and undertake secondary processing to apply the R name and logo and package the watches before sale to the final customer. It will then sell and distribute the watches in the manner described in Example 10. As a consequence, at the beginning of Year 4, Primair and Company S renegotiate their earlier agreement and enter into a new long term licensing agreement. The new agreement, to start at the beginning of Year 4, is for five years, with Company S having an option for a further five years. Under the ... Read more

TPG2022 Chapter VI Annex I example 12

TPG2022 Chapter VI Annex I example 12
39. The facts in this example are the same as in Example 9 with the following additions: By the end of Year 3, the R brand is successfully established in the country Y market and Primair and Company S renegotiate their earlier agreement and enter into a new long-term licensing agreement. The new agreement, which is to commence at the beginning of Year 4, is for five years with Company S having an option for a further five years. Under this agreement, Company S agrees to pay a royalty to Primair based on the gross sales of all watches bearing the R trademark. In all other respects, the new agreement has the same terms and conditions as in the previous arrangement between the parties. There is no adjustment made to the price payable by Company S for the branded watches as a result of the ... Read more

TPG2022 Chapter VI Annex I example 11

TPG2022 Chapter VI Annex I example 11
35. The facts in this example are the same as in Example 9, except that Company S now enters into a three-year royalty-free agreement to market and distribute the watches in the country Y market, with no option to renew. At the end of the three-year period, Company S does not enter into a new contract with Primair. 36. Assume that it is demonstrated that independent enterprises do enter into short-term distribution agreements where they incur marketing and distribution expenses, but only where they stand to earn a reward commensurate with the functions performed, the assets used, and the risks assumed within the time period of the contract. Evidence derived from comparable independent enterprises shows that they do not invest large sums of money in developing marketing and distribution infrastructure where they obtain only a short-term marketing and distribution agreement, with the attendant risk of ... Read more

TPG2022 Chapter VI Annex I example 10

TPG2022 Chapter VI Annex I example 10
30. The facts in this example are the same as in Example 9, except that the market development functions undertaken by Company S in this Example 10 are far more extensive than those undertaken by Company S in Example 9. 31. Where the marketer/distributor actually bears the costs and assumes the risks of its marketing activities, the issue is the extent to which the marketer/distributor can share in the potential benefits from those activities. A thorough comparability analysis identifies several uncontrolled companies engaged in marketing and distribution functions under similar long-term marketing and distribution arrangements. Assume, however, that the level of marketing expense Company S incurred in Years 1 through 5 far exceeds that incurred by the identified comparable independent marketers and distributors. Assume further that the high level of expense incurred by Company S reflects its performance of additional or more intensive functions than ... Read more

TPG2022 Chapter VI Annex I example 9

TPG2022 Chapter VI Annex I example 9
26. The facts in this example are the same as in Example 8, except as follows: Under the contract between Primair and Company S, Company S is now obligated to develop and execute the marketing plan for country Y without detailed control of specific elements of the plan by Primair. Company S bears the costs and assumes certain of the risks associated with the marketing activities. The agreement between Primair and Company S does not specify the amount of marketing expenditure Company S is expected to incur, only that Company S is required to use its best efforts to market the watches. Company S receives no direct reimbursement from Primair in respect of any expenditure it incurs, nor does it receive any other indirect or implied compensation from Primair, and Company S expects to earn its reward solely from its profit from the sale of ... Read more

TPG2022 Chapter VI Annex I example 8

TPG2022 Chapter VI Annex I example 8
20. Primair, a resident of country X, manufactures watches which are marketed in many countries around the world under the R trademark and trade name. Primair is the registered owner of the R trademark and trade name. The R name is widely known in countries where the watches are sold and has obtained considerable economic value in those markets through the efforts of Primair. R watches have never been marketed in country Y, however, and the R name is not known in the country Y market. 21. In Year 1, Primair decides to enter the country Y market and incorporates a wholly owned subsidiary in country Y, Company S, to act as its distributor in country Y. At the same time, Primair enters into a long-term royalty-free marketing and distribution agreement with Company S. Under the agreement, Company S is granted the exclusive right to ... Read more

TPG2022 Chapter VI Annex I example 7

TPG2022 Chapter VI Annex I example 7
16. Primero is the parent company of an MNE group engaged in the pharmaceutical business and does business in country M. Primero develops patents and other intangibles relating to Product X and registers those patents in countries around the world. 17. Primero retains its wholly owned country N subsidiary, Company S, to distribute Product X throughout Europe and the Middle East on a limited risk basis. The distribution agreement provides that Primero, and not Company S, is to bear product recall and product liability risk, and provides further that Primero will be entitled to all profit or loss from selling Product X in the territory after providing Company S with the agreed level of compensation for its distribution functions. Operating under the contract, Company S purchases Product X from Primero and resells Product X to independent customers in countries throughout its geographical area of operation ... Read more

TPG2022 Chapter VI Annex I example 6

TPG2022 Chapter VI Annex I example 6
14. In Year 1, a multinational group comprised of Company A (a country A corporation) and Company B (a country B corporation) decides to develop an intangible, which is anticipated to be highly profitable based on Company B’s existing intangibles, its track record and its experienced research and development staff. The intangible is expected to take five years to develop before possible commercial exploitation. If successfully developed, the intangible is anticipated to have value for ten years after initial exploitation. Under the development agreement between Company A and Company B, Company B will perform and control all activities related to the development, enhancement, maintenance, protection and exploitation of the intangible. Company A will provide all funding associated with the development of the intangible (the development costs are anticipated to be USD 100 million per year for five years), and will become the legal owner of ... Read more

TPG2022 Chapter VI Annex I example 5

TPG2022 Chapter VI Annex I example 5
13. The facts are the same as in Example 4 except that instead of appreciating, the value of the patents decreases during the time they are owned by Company S as a result of unanticipated external circumstances. Under these circumstances, Company S is entitled to retain the proceeds of the sale, meaning that it will suffer the loss ... Read more

TPG2022 Chapter VI Annex I example 4

TPG2022 Chapter VI Annex I example 4
10. The facts related to the development of the patents are the same as described in Example 3. In contrast to Example 1, Company S in this example has employees capable of making, and who actually make, the decision to take on the patent portfolio. All decisions relating to the licensing programme were taken by Company S employees, all negotiations with licensees were undertaken by Company S employees, and Company S employees monitored compliance of independent licensees with the terms of the licenses. It should be assumed for purposes of this example that the price paid by Company S in exchange for the patents was an arm’s length price that reflected the parties’ respective assessments of the future licensing programme and the anticipated returns to be derived from exploitation of the patents as of the time of their assignment to Company S. For the purposes ... Read more

TPG2022 Chapter VI Annex I example 3

TPG2022 Chapter VI Annex I example 3
8. The facts are the same as in Example 2. However, after licensing the patents to associated and independent enterprises for a few years, Company S, again acting under the direction and control of Premiere, sells the patents to an independent enterprise at a price reflecting appreciation in the value of the patents during the period that Company S was the legal owner. The functions of Company S throughout the period it was the legal owner of the patents were limited to performing the patent registration functions described in Examples 1 and 2. 9. Under these circumstances, the income of Company S should be the same as in Example 2. It should be compensated for the registration functions it performs, but should not otherwise share in the returns derived from the exploitation of the intangibles, including the returns generated from the disposition of the intangibles ... Read more

TPG2022 Chapter VI Annex I example 2

TPG2022 Chapter VI Annex I example 2
5. The facts related to the development and control of patentable inventions are the same as in Example 1. However, instead of granting a perpetual and exclusive licence of its patents back to Premiere, Company S, acting under the direction and control of Premiere, grants licences of its patents to associated and independent enterprises throughout the world in exchange for periodic royalties. For purposes of this example, it is assumed that the royalties paid to Company S by associated enterprises are all arm’s length. 6. Company S is the legal owner of the patents. However, its contributions to the development, enhancement, maintenance, protection, and exploitation of the patents are limited to the activities of its three employees in registering the patents and maintaining the patent registrations. The Company S employees do not control or participate in the licensing transactions involving the patents. Under these circumstances, ... Read more

TPG2022 Chapter VI Annex I example 1

TPG2022 Chapter VI Annex I example 1
1. Premiere is the parent company of an MNE group. Company S is a wholly owned subsidiary of Premiere and a member of the Premiere group. Premiere funds R&D and performs ongoing R&D functions in support of its business operations. When its R&D functions result in patentable inventions, it is the practice of the Premiere group that all rights in such inventions be assigned to Company S in order to centralise and simplify global patent administration. All patent registrations are held and maintained in the name of Company S. 2. Company S employs three lawyers to perform its patent administration work and has no other employees. Company S does not conduct or control any of the R&D activities of the Premiere group. Company S has no technical R&D personnel, nor does it incur any of the Premiere group’s R&D expense. Key decisions related to defending ... Read more

TPG2022 Chapter V Annex IV

Annex IV to Chapter V Country-by-Country Reporting Implementation Package Introduction In order to facilitate a consistent and swift implementation of the Country-by-Country Reporting developed under Action 13 of the Base Erosion and Profit Shifting Action Plan (BEPS Action Plan, OECD, 2013), a Country-by-Country Reporting Implementation Package. This implementation package consists of (i) model legislation which could be used by countries to require the ultimate parent entity of an MNE group to file the Country-by-Country Report in its jurisdiction of residence including backup filing requirements and (ii) three model Competent Authority Agreements that are to be used to facilitate implementation of the exchange of Country-by-Country Reports, respectively based on the 1) Convention on Mutual Administrative Assistance in Tax Matters, 2) bilateral tax conventions and 3) Tax Information Exchange Agreements (TIEAs). It is recognised that developing countries may require support for the effective implementation of Country-by-Country Reporting ... Read more

TPG2022 Chapter V Annex III

TPG2022 Chapter V Annex III
Annex III to Chapter V Transfer Pricing Documentation – Country-by-Country Report A. Model template for the Country-by-Country Report Table 1. Overview of allocation of income, taxes and business activities by tax jurisdiction Table 2. List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction Please specify the nature of the activity of the Constituent Entity in the Additional Information” section. Table 3. Additional Information B. Template for the Country-by-Country Report – General instructions Purpose This Annex III to Chapter V of these Guidelines contains a template for reporting a multinational enterprise’s (MNE) group allocation of income, taxes and business activities on a tax jurisdiction-by-tax jurisdiction basis. These instructions form an integral part of the model template for the Country-by-Country Report. Definitions Reporting MNE A Reporting MNE is the ultimate parent entity of an MNE group. Constituent Entity For ... Read more

TPG2022 Chapter V Annex II

Annex II to Chapter V Transfer Pricing Documentation – Local file The following information should be included in the local file: Local entity A description of the management structure of the local entity, a local organisation chart, and a description of the individuals to whom local management reports and the country(ies) in which such individuals maintain their principal offices. A detailed description of the business and business strategy pursued by the local entity including an indication whether the local entity has been involved in or affected by business restructurings or intangibles transfers in the present or immediately past year and an explanation of those aspects of such transactions affecting the local entity. Key competitors. Controlled transactions For each material category of controlled transactions in which the entity is involved, provide the following information: A description of the material controlled transactions (e.g. procurement of manufacturing services, ... Read more

TPG2022 Chapter V Annex I

Annex I to Chapter V Transfer Pricing Documentation – Master file The following information should be included in the master file: Organisational structure Chart illustrating the MNE group’s legal and ownership structure and geographical location of operating entities. Description of MNE group’s business(es) General written description of the MNE group’s business including: –     Important drivers of business profit; –      A description of the supply chain for the group’s five largest products and/or service offerings by turnover plus any other products and/or services amounting to more than 5% of group turnover. The required description could take the form of a chart or a diagram; –      A list and brief description of important service arrangements between members of the MNE group, other than research and development (R&D) services, including a description of the capabilities of the principal locations providing important services and transfer pricing policies for allocating ... Read more

TPG2022 Chapter IV Annex II paragraph 87

The format, processing, and evaluation of the renewal application would usually be similar to those for an initial MAP APA application. However, the necessary level of detail may be reduced with the agreement of the participating tax administrations, particularly if there have not been material changes in the facts and circumstances of the case. Renewal of a MAP APA is not automatic and depends on the consent of all parties concerned and on the taxpayer demonstrating, among other things, compliance with the terms and conditions of the existing MAP APA. The methodology and terms and conditions of the renewed MAP APA may, of course, differ from those of the previous MAP APA ... Read more

TPG2022 Chapter IV Annex II paragraph 86

A request to renew a MAP APA should be made at the time prescribed by the participating tax administrations, bearing in mind the need for sufficient lead time for the taxpayer(s) and tax administrations to review and evaluate the renewal request and to reach agreement. It may be helpful to commence the renewal process well before the existing MAP APA has expired ... Read more

TPG2022 Chapter IV Annex II paragraph 85

The revised MAP APA should state the date from which the revision is effective and also the date on which the original MAP APA is no longer effective. If the date of the change can be precisely identified, then normally the revision should take effect from that date but if a precise date cannot be identified, then normally the MAP APA would be revised with effect from the first day of the accounting period following the one in which the change took place. If the tax administrations and the taxpayer cannot agree on the need for a revised MAP APA or how to revise the MAP APA, the MAP APA will be cancelled and will no longer have any further force and effect on the participating taxpayers and tax administrations. The determination of the effective date of the cancellation of the MAP APA will normally ... Read more

TPG2022 Chapter IV Annex II paragraph 84

The taxpayer’s notification to the tax administrations that such a change has taken place should be filed as soon as practicable after the change occurs, or the taxpayer becomes aware of the change, and in any event no later than the date for filing, if required, the annual report for that year or accounting period. Early notification is encouraged in order to give the affected parties more time to try to reach agreement on revising the MAP APA, thereby reducing the likelihood of cancellation ... Read more

TPG2022 Chapter IV Annex II paragraph 83

The validity of the transfer pricing methodology is dependent on the critical assumptions continuing to apply for the duration of the MAP APA. The MAP APA and any domestic confirmation or agreement should therefore require the taxpayer to notify the affected tax administrations of any changes. If, after evaluation by the tax administrations, it is established that there has been a material change in conditions noted in a critical assumption, the MAP APA may be revised to reflect the change. As discussed above, the MAP APA may also contain assumptions, which although falling short of being critical to the validity of the MAP APA, nevertheless warrant a review by the affected parties. One result of such a review may again be a revision of the MAP APA. However, in many cases the terms and conditions of the MAP APA may be sufficiently flexible to account ... Read more

TPG2022 Chapter IV Annex II paragraph 82

The tax administration proposing the cancellation should inform and consult with the affected taxpayer(s) and the other tax administration(s) in a timely manner. This consultation should include an explanation of the reasons for proposing that the APA be cancelled. The taxpayer should be given an opportunity to respond before any final decision is taken ... Read more

TPG2022 Chapter IV Annex II paragraph 81

The tax administration may waive cancellation if the taxpayer can show reasonable cause, to the satisfaction of the tax administration, and if the taxpayer agrees to make any adjustment proposed by the tax administration to correct the misrepresentation, mistake, omission or non- compliance, or take into account the changes in critical assumptions, tax law or treaty provision relevant to the APA. Such action may give rise to the revision of the MAP APA (see below) ... Read more

TPG2022 Chapter IV Annex II paragraph 80

When a MAP APA is cancelled the date of cancellation will be determined by the nature of the event that led to the cancellation. This may be a specific date, for example if the event giving rise to the cancellation was a material change in tax law (although the MAP APA may still provide for there to be a period of transition between the date of change in the law and the cancellation date). In other cases, the cancellation will be effective for a particular tax year or accounting period, for example where there was a material change in one of the critical assumptions which could not be ascribed to a particular date in that tax year or accounting period. The MAP APA will no longer have any further force on the affected taxpayer(s) and the other tax administration from the date of cancellation ... Read more

TPG2022 Chapter IV Annex II paragraph 79

A tax administration may cancel a MAP APA (either unilaterally or by mutual agreement) if it is established that one of the following situations has arisen: a) There was a misrepresentation, mistake or omission that was not attributable to the neglect, carelessness, or wilful default of a taxpayer when filing the MAP APA request and submission, the annual reports, or other supporting documentation or in supplying any related information; or b) The participating taxpayer(s) failed to materially comply with any term or condition of the MAP APA; or c) There was a material breach of one or more of the critical assumptions; or d) There was a change in tax law, including a treaty provision materially relevant to the MAP APA; and it has not proved possible to revise the agreement (see paragraphs 80-82 below) to take account of the changed circumstances ... Read more

TPG2022 Chapter IV Annex II paragraph 78

When a MAP APA is revoked, the revocation is retroactive to the first day of the first tax year or accounting period for which the MAP APA was effective and the MAP APA will no longer have any further force and effect on the affected taxpayer(s) and the other tax administration. Because of the serious effect of this action, the tax administration proposing to revoke a MAP APA should only do so after a careful and thorough evaluation of the relevant facts and should inform and consult with the affected taxpayer(s) and other tax administration(s) on a timely basis ... Read more

TPG2022 Chapter IV Annex II paragraph 77

A tax administration may revoke a MAP APA (either unilaterally or by mutual agreement) if it is established that: a) There was a misrepresentation, mistake or omission that was attributable to the neglect, carelessness, or willful default of a taxpayer when filing the MAP APA request and submission, the annual reports, or other supporting documentation or in supplying any related information; or b) The participating taxpayer(s) failed to materially comply with a fundamental term or condition of the MAP APA ... Read more

TPG2022 Chapter IV Annex II paragraph 76

The most drastic action is revocation, which has the effect that the taxpayer is treated as if the MAP APA had never been entered into. Less serious is cancellation, which means the taxpayer is treated as if the MAP APA had been effective and in force but only up to the cancellation date and not for the whole of the proposed period. If the MAP APA is cancelled or revoked, then for those tax years or accounting periods for which the cancellation or revocation is effective, the relevant tax administrations and taxpayers will retain all their rights under their domestic laws and treaty provisions, as though the MAP APA had not been undertaken. Finally, the MAP APA may be revised, which means that the taxpayer will still have the benefit of the MAP APA for the whole of the proposed period, albeit that different terms ... Read more

TPG2022 Chapter IV Annex II paragraph 75

If the tax administrations determine that any requirement of the MAP APA has not been met, they may nevertheless agree, based on the terms and conditions of the MAP APA, to continue to apply it, for example where the effect of the failure to comply is not material. If they do not agree to continue to apply the MAP APA, there are three options that a tax administration could take. The nature of the action to be taken is likely to depend on the seriousness of the non compliance ... Read more

TPG2022 Chapter IV Annex II paragraph 74

In general, the consequences of non-compliance with the terms and conditions of a MAP APA, or the failure to meet a critical assumption, will turn on a) the terms of the MAP APA, b) any further agreement between the competent authorities as to how to deal with such non- compliance or failure, and c) any applicable domestic law or procedural provisions. That is, the MAP APA itself may explicitly prescribe procedures to follow, or describe the consequences that will arise, in situations of non- compliance or failure. In such situations, the competent authorities may, at their discretion, enter into discussions of what action to take on a case by case basis. Finally, domestic law or procedural provisions may impose consequences or obligations on the taxpayer and affected tax administration. The following paragraphs provide suggested guidelines similar to procedures that have been adopted in some jurisdictions ... Read more

TPG2022 Chapter IV Annex II paragraph 73

A MAP APA applies only to the parties specified in the agreement and in respect of the specified transactions. The existence of such an agreement would not prevent the participating tax administrations from undertaking audit activity in the future, although any audit of transactions that are covered by the MAP APA would be limited to determining the extent of the taxpayer’s compliance with its terms and conditions and whether the circumstances and assumptions necessary for the reliable application of the chosen methodology continue to exist. The affected tax administrations may require the taxpayer to establish that: a) The taxpayer has complied with the terms and conditions of the MAP APA; b) The representations in the proposal, the annual reports and in any supporting documentation, remain valid and that any material changes in facts or circumstances have been included in the annual reports; c) The methodology ... Read more

TPG2022 Chapter IV Annex II paragraph 72

For each tax year, or accounting period, covered by the MAP APA, the taxpayer may be required to file, in addition to its tax return, an annual report describing the taxpayer’s actual operations for the year and demonstrating compliance with the terms and conditions of the MAP APA, including the information necessary to decide if the critical assumptions, or other safeguards, have been met. This information should be made available by the taxpayer to the tax administration with which it has concluded the domestic confirmation or agreement, in the manner provided for under the relevant domestic law or procedure ... Read more

TPG2022 Chapter IV Annex II paragraph 71

The taxpayer and the tax administrations should agree the types of documents and records (including any necessary translations) that the taxpayer must maintain and retain for the purposes of verifying the extent of the taxpayer’s compliance with the MAP APA. The guidance in Chapters IV and V of the Guidelines should be followed in order to avoid the documentation requirements becoming overly burdensome. Provisions regarding the retention period and the response time for producing the documents and records may also be included ... Read more

TPG2022 Chapter IV Annex II paragraph 70

It is essential that the tax administrations are able to establish that the taxpayer is abiding by the terms and conditions on which the mutual agreement is based, throughout its duration. As the mutual agreement is made between the tax administrations and the taxpayer is not a party to such arrangements, the tax administrations have to rely on the domestic confirmation or agreement procedure described above in order to monitor the taxpayer’s compliance. If the taxpayer fails to abide by the terms and conditions of the MAP APA, then it no longer need be applied. This section therefore focuses on the aspects of the domestic procedures necessary for the successful implementation of the MAP APA and on the necessary measures to ensure the taxpayer’s compliance with all of its terms and conditions ... Read more

TPG2022 Chapter IV Annex II paragraph 69

Neither the tax administrations nor the taxpayer are in any way obliged to apply the methodology agreed upon as part of the MAP APA to tax years ending prior to the first year of the MAP APA (often referred to as “rolling back”). Indeed, to do so might be impossible if a different fact pattern then prevailed. However, the methodology to be applied prospectively under the MAP APA may be instructive in determining the treatment of comparable transactions in earlier years. In some cases, the transfer prices may already be under enquiry by one tax administration in accounting periods prior to the MAP APA period and that tax administration and the taxpayer may wish to take the opportunity to use the agreed methodology to resolve the enquiry, or, pursuant to domestic law requirements, the tax administration may choose to make such an adjustment even without ... Read more

TPG2022 Chapter IV Annex II paragraph 68

The way this confirmation or agreement is given will vary from country to country and the exact form will depend on the particular domestic law and practice. In some countries the confirmation or agreement will take the form of an APA under the relevant domestic procedure. To implement the mutual agreement effectively, the domestic confirmation or agreement must be consistent with the MAP APA and give the taxpayer, as a minimum, the same benefits as negotiated in the mutual agreement. Additionally, where it was not possible to completely eliminate double taxation, it is open to one of the participating jurisdictions to give unilateral relief from the remaining double taxation in its domestic confirmation procedure. Also, that confirmation or agreement may cover additional matters to those contained in the MAP APA, for example the domestic tax treatment of other or ancillary issues, additional record keeping or ... Read more

TPG2022 Chapter IV Annex II paragraph 67

Once the MAP APA has been finally agreed, the participating tax authorities need to give effect to the agreement in their own jurisdiction. The tax administrations should enter into some kind of a confirmation or agreement with their respective taxpayers consistent with the mutual agreement entered into by the participating competent authorities. This confirmation or agreement would provide the taxpayer with the certainty that the transfer pricing transactions covered by the MAP APA would not be adjusted, so long as the taxpayer complies with the terms and conditions of the mutual agreement, as reflected in the domestic confirmation or agreement and has not made materially false or misleading statements during the process, including statements made in annual compliance reports. The terms and conditions would include certain assumptions which, if not met, might require an adjustment to be made or the agreement to be reconsidered ... Read more

TPG2022 Chapter IV Annex II paragraph 66

The MAP APA will be in the form of a written document and the content, layout etc. will be decided by the participating competent authorities. In order to achieve the objective of providing a clear record of the mutual agreement and for the agreement to be effectively implemented, the mutual agreement should contain the following minimum information or should refer to where this information is provided in the MAP APA proposal documentation: a) The names and addresses of the enterprises that are covered by the arrangement; b) The transactions, agreements or arrangements, tax years or accounting periods covered; c) A description of the agreed methodology and other related matters such as agreed comparables or a range of expected results; d) A definition of relevant terms which form the basis of applying and calculating the methodology (e.g. sales, cost of sales, gross profit, etc.); e) Critical ... Read more

TPG2022 Chapter IV Annex II paragraph 65

Participating competent authorities should prepare a draft mutual agreement when they have agreed on the methodology and other terms and conditions. It may be that, despite the best efforts of the competent authorities, the proposed mutual agreement does not completely eliminate double taxation. The taxpayer(s) should therefore be given an opportunity to say whether such a draft MAP APA is acceptable before it is finalised; there can be no question of imposing such an agreement in advance without the taxpayer’s consent ... Read more

TPG2022 Chapter IV Annex II paragraph 64

The taxpayer or tax administration may withdraw from the MAP APA process at any time. However, withdrawal from the process, especially at a late stage and without good cause, should be discouraged because of the inevitable waste of resources caused by such action. When a MAP APA request is withdrawn neither the taxpayer nor the tax administrations should have any obligations to each other, and any previous undertakings and understandings between the parties would be of no further force and effect, unless otherwise required by domestic law (e.g. APA user fee may not be refundable). If a tax administration proposes to withdraw, the taxpayer should be advised of the reasons for such action and given an opportunity to make further representations ... Read more

TPG2022 Chapter IV Annex II paragraph 63

The role of the taxpayer in this process is necessarily more limited, than in the fact finding process, given that the finalisation of a MAP APA is a government to government process. The competent authorities may agree to have the taxpayer make a presentation of the factual and legal issues before the discussions themselves commence, when the taxpayer would leave. It also may be helpful to arrange to have the taxpayer available, on call, to answer any factual questions that may arise during the discussions. The taxpayer should avoid presenting new factual information or making supplementary representations at this meeting. The tax authorities will require time to review such matters and this will necessitate a postponement of a final decision on the proposed MAP APA. Such information should have been supplied prior to the commencement of the discussions ... Read more

TPG2022 Chapter IV Annex II paragraph 62

Experience has also shown that early and frequent discussion between the competent authorities as problems arise can be helpful and can avoid unpleasant surprises during the process. Given the nature of MAP APAs, there will often be significant issues which cannot be resolved simply by exchange of position papers and so more formal exchanges, such as face to face meetings between the competent authorities may be required. Use of conference calls or video conferencing may be helpful ... Read more

TPG2022 Chapter IV Annex II paragraph 61

The competent authorities should conduct the mutual agreement discussions in a timely manner. This requires the devotion of sufficient resources and appropriately skilled personnel to the process. It is desirable that the competent authorities discuss and co-ordinate an appropriate plan of action with regards to such matters as: designating authorised officers, exchanging of information, co-ordination of the review and evaluation of the proposal, tentative scheduling of dates for further consultations, negotiation and conclusion of a suitable agreement. The level of input and resources required should be tailored to the individual requirements of the case ... Read more

TPG2022 Chapter IV Annex II paragraph 60

Many countries prefer to be fully involved in the process as soon as it commences and wish to work closely with the other competent authorities. Other countries prefer to confine their involvement to reviewing and commenting upon the MAP APA proposals as they near completion. However, the involvement of all participating tax administrations in the process at an early stage is recommended, subject to resource constraints, as this should maximise the efficiency of the process and help forestall unnecessary delays in concluding the mutual agreement ... Read more

TPG2022 Chapter IV Annex II paragraph 59

In order to expedite the process, taxpayers should take responsibility for ensuring that the competent authorities, before they start to negotiate, are in possession of the same facts, have all the information they need and have a thorough understanding of the issues. This can be achieved by the taxpayer routinely making information requested by one tax administration available, at broadly the same time, to the other tax administration, preparing and transmitting notes of fact finding meetings by one tax administration to the other tax administration and where logistically and economically practical, facilitating joint fact finding meetings. The taxpayer should also arrange for any necessary translations to be made and ensure there is no undue delay in responding to requests for further relevant information. The taxpayer should also be entitled to confer with its tax administrations when mutually appropriate and convenient while the proposal is undergoing ... Read more

TPG2022 Chapter IV Annex II paragraph 58

Generally, the competent authorities would conduct simultaneous, independent reviews and evaluations of the taxpayer’s proposal, assisted in this task, where necessary, by transfer pricing, industry, or other specialists from elsewhere in their tax administration. However, it may be more efficient in appropriate cases to have some degree of joint fact finding. This could take a variety of forms ranging from an occasional joint fact finding meeting or site visit, to the preparation of a joint report by delegated caseworkers ... Read more

TPG2022 Chapter IV Annex II paragraph 57

The prospective nature of a MAP APA often involves the provision by the taxpayer of commercial information relating to forecasts which is likely to be even more sensitive to disclosure than information supplied after the event. Accordingly, in order to ensure that taxpayers have confidence in the MAP APA process, tax administrations should ensure that taxpayer information provided during the course of the MAP APA process is subject to the same secrecy, confidentiality and privacy safeguards of the relevant domestic law as any other taxpayer information. Further, where information is exchanged between competent authorities under the terms of the tax treaty, that information can be disclosed only in accordance with the specified terms of the treaty, and any exchange must comply with the exchange of information article(s) of the relevant treaty ... Read more

TPG2022 Chapter IV Annex II paragraph 56

The aim of this stage of the MAP APA process is for the participating competent authorities to have all relevant information, data, and analyses they need for the negotiations. Where one tax administration obtains additional information from the taxpayer relevant to the subject of the MAP APA, for example at a meeting with the taxpayer’s staff, both the taxpayer and the tax administration should ensure the information reaches the other participating tax administration(s). The relevant competent authorities should arrange, amongst themselves and the taxpayers, for an appropriate mechanism to corroborate the completeness and details of documents and information supplied by the taxpayer(s). The requirements of the participating competent authorities should be respected. For example, many jurisdictions require that not only is the same factual information provided to all participating competent authorities but that it should, as far as is practicable, be made available at the ... Read more
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