During the FY 2010, A OY had made a group contribution to another domestic group company. When the 2010 tax assessment was carried out, A OY’s profit from business activities after deducting the group contribution was determined to be EUR 0. The French company B was part of the same group as A OY. For B, a transfer pricing adjustment had subsequently been made whereby an addition of EUR 656,339 was made to B’s taxable income based on payments to A OY. In the arbitration procedure between the French and Finnish authorities under the Arbitration Convention, the said transfer pricing adjustment was considered to be compatible with the arm’s length principle. The Tax Administration implemented the final result of the arbitration procedure by means of a consequential amendment to A OY’s taxation for 2010. An amount of EUR 656,339 was deducted from the company’s income from business activities, but the company was not assessed a loss for the source of ... Read more

The existence of an arbitration clause similar to paragraph 5 of Article 25 in a particular bilateral treaty should make the mutual agreement procedure itself more effective even in cases where resort to arbitration is not necessary. The very existence of this possibility should encourage greater use of the mutual agreement procedure since both governments and taxpayers will know at the outset that the time and effort put into the mutual agreement procedure will be likely to produce a satisfactory result. Further, governments will have an incentive to ensure that the mutual agreement procedure is conducted efficiently in order to avoid the necessity of subsequent supplemental procedures ... Read more

In the 2008 update to the OECD Model Tax Convention, Article 25 was supplemented with a new paragraph 5 which provides that, in the cases where the competent authorities are unable to reach an agreement within two years, the unresolved issues will, at the request of the person who presented the case, be solved through an arbitration process. This extension of the mutual agreement procedure ensures that where the competent authorities cannot reach an agreement on one or more issues that prevent the resolution of a case, a resolution of the case will still be possible by submitting those issues to arbitration. Arbitration under paragraph 5 of Article 25 is an integral part of the mutual agreement procedure and does not constitute an alternative route to solving tax treaty disputes between States. Paragraphs 63-85 of the Commentary on Article 25 provide guidance on the arbitration phase of the mutual agreement procedure ... Read more

As trade and investment have taken on an increasingly international character, the tax disputes that, on occasion, arise from such activities have likewise become increasingly international. And more particularly, the disputes no longer involve simply controversy between a taxpayer and its tax administration but also concern disagreements between tax administrations themselves. In many of these situations, the MNE group is primarily a stakeholder and the real parties in interest are the governments involved. Although traditionally problems of double taxation have been resolved through the mutual agreement procedure, relief is not guaranteed if the tax administrations, after consultation, cannot reach an agreement on their own and if there is no mechanism, such as an arbitration clause similar to the one of paragraph 5 of Article 25, to provide the possibility of a resolution. However, where a particular tax treaty contains an arbitration clause similar to the one of paragraph 5 of Article 25, this extension of the mutual agreement procedure makes ... Read more

Hewlett-Packard pays NIS 1.6 billion ($450 million) in tax on its 2006 acquisition of the intellectual property of Israel company Mercury Interactive, in addition to the NIS 1 billion already paid to the Israel Tax Authority. The acquisition at issue took place in two stages. First the shares in Mercury Interactive were acquired by Hewlett-Packard for $4.5 billion in 2006. Then in 2009 Mercury Interactive’s intellectual property was transferred to Hewlett-Packard for a substantially lower price of $963 million. The Tax Authority held that the sales of the intellectual property should be taxed at the full value of $4.5 billion The case was settled in international arbitration, which ended with an additional tax payment of NIS 1.6 billion by Hewlett-Packard ... Read more

The existence of an arbitration clause similar to paragraph 5 of Article 25 in a particular bilateral treaty should make the mutual agreement procedure itself more effective even in cases where resort to arbitration is not necessary. The very existence of this possibility should encourage greater use of the mutual agreement procedure since both governments and taxpayers will know at the outset that the time and effort put into the mutual agreement procedure will be likely to produce a satisfactory result. Further, governments will have an incentive to ensure that the mutual agreement procedure is conducted efficiently in order to avoid the necessity of subsequent supplemental procedures ... Read more

In the 2008 update to the OECD Model Tax Convention, Article 25 was supplemented with a new paragraph 5 which provides that, in the cases where the competent authorities are unable to reach an agreement within two years, the unresolved issues will, at the request of the person who presented the case, be solved through an arbitration process. This extension of the mutual agreement procedure ensures that where the competent authorities cannot reach an agreement on one or more issues that prevent the resolution of a case, a resolution of the case will still be possible by submitting those issues to arbitration. Arbitration under paragraph 5 of Article 25 is an integral part of the mutual agreement procedure and does not constitute an alternative route to solving tax treaty disputes between States. Paragraphs 63-85 of the Commentary on Article 25 provide guidance on the arbitration phase of the mutual agreement procedure ... Read more

As trade and investment have taken on an increasingly international character, the tax disputes that, on occasion, arise from such activities have likewise become increasingly international. And more particularly, the disputes no longer involve simply controversy between a taxpayer and its tax administration but also concern disagreements between tax administrations themselves. In many of these situations, the MNE group is primarily a stakeholder and the real parties in interest are the governments involved. Although traditionally problems of double taxation have been resolved through the mutual agreement procedure, relief is not guaranteed if the tax administrations, after consultation, cannot reach an agreement on their own and if there is no mechanism, such as an arbitration clause similar to the one of paragraph 5 of Article 25, to provide the possibility of a resolution. However, where a particular tax treaty contains an arbitration clause similar to the one of paragraph 5 of Article 25, this extension of the mutual agreement procedure makes ... Read more