In some situations, the APA agreement, domestic law or procedural provisions may prescribe procedures to follow, or describe the consequences that will arise, in situations where there is a failure to fulfil critical In these situations, tax administrations should follow the prescribed procedures.46 In other situations, tax administrations may have some discretion over their response.47 Also in the event that the effect of the breach is not material, (Paragraph 75 of the Annex II to Chapter IV of the OECD TPG), the taxpayer and tax administration may agree to continue to apply the APA In the case of bilateral or multilateral APAs, a common and helpful practice is for the tax administrations to consult before imposing any unilateral changes,48 and such consultation is mandated in some APAs.49 In the absence of other rules and procedures prescribed by domestic law, when the guidance in Chapter IV of the OECD TPG apply , a breach of critical assumption with the APA could have three potential outcomes as provided in section E.3 Annex II to Chapter IV of OECD TPG:50
- Revision, which means that the taxpayer and tax administrations still have the benefit of the APA for the whole of the proposed period, albeit that different terms apply before and after the revision date.
- Cancellation, which means the APA is treated as being effective and in force but only up to the cancellation date and not for the whole of the proposed period.
- Revocation, which has the effect that the taxpayer is treated as if the APA had never been entered into.
46 Paragraph 74 of Annex II to Chapter IV of the OECD TPG.
47Paragraph 66 of Annex II to Chapter IV of the OECD TPG, item e) (breach of critical assumption would “trigger renegotiation of the agreement”).
48 Paragraph 75 of Annex II to Chapter IV of the OECD TPG (considering what “the tax administrations determine”).
49 Paragraph 66 of Annex II to Chapter IV of the OECD TPG, item e) (breach of critical assumption would “trigger renegotiation of the agreement”).
50 Paragraph 76 of Annex II to Chapter IV of the OECD TPG.