TPG2022 Chapter VI Annex II – Hard To Value Intangibles – 3. Dispute prevention and resolution

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3. Dispute prevention and resolution in relation to the HTVI approach

34. The purpose of this guidance is to improve consistency in the application of the HTVI approach by jurisdictions, thus reducing the risk of economic double taxation. In addition to this guidance, there may be other tools at the disposal of taxpayers to avoid instances of double taxation and enhance tax certainty in HTVI transactions.

35. In particular, Chapter IV of these Guidelines discusses in detail advance pricing arrangements (APAs), which if concluded bilaterally or multilaterally between treaty partner competent authorities provide an increased level of certainty in the jurisdictions involved, lessen the likelihood of double taxation, and may proactively prevent transfer pricing disputes. Recognising the role of APAs in preventing double taxation and providing certainty to taxpayers, paragraph 6.193 of these Guidelines prevents the application of the HTVI approach when the transfer of the HTVI is covered by a bilateral or multilateral APA in effect for the period in questions between the jurisdictions of the transferee and the transferor.

36. In this regard, the Final BEPS Report for Action 14 “Making Dispute Resolution Mechanisms More Effective” (BEPS Report on Action 14) recommends as a best practice the implementation of bilateral APAs, as soon as a jurisdiction has the capacity to do so (Best Practice no. 4). Furthermore, one of the elements of the BEPS Report on Action 14 is that countries with bilateral APA programmes provide for the rollback of APAs in appropriate cases, subject to the applicable time limits where the relevant facts and circumstances in the earlier tax years are the same and subject to the verification of these facts and circumstances on audit.

37. In the event that the application of the approach to HTVI leads to double taxation, the guidance in paragraph 6.195 states that it would be important to permit resolution of such cases through access to the mutual agreement procedure under the applicable treaty. Accordingly, this guidance should be read in conjunction with Article 25 and its Commentary and the commitment made in the Final BEPS Report on Action 14. That Report describes the minimum standard on dispute resolution to which the members of the Inclusive Framework on BEPS have committed, which consists of specific measures to remove obstacles to an effective and efficient mutual agreement procedure.

38. In the context of the HTVI approach it is especially relevant that under Article 25 the mutual agreement procedure “can be set in motion by the 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, and that this taxation appears as a risk which is not merely possible but probable” (see paragraph 14 of the Commentary to Article 25 of the Model Tax Convention). This possibility under the applicable tax treaty may alleviate some of the concerns arising in relation to timing issues and reduce the instances of unresolved double taxation.

39. Finally, one of the best practices recommended in the BEPS Report on Action 14 and that is relevant for HTVI transactions is that, subject to the requirements of paragraph 1 of Article 25, countries implement appropriate procedures to permit, in certain cases and after an initial tax assessment, taxpayer requests for the multiyear resolution through the MAP of recurring issues with respect to filed tax years, where the relevant facts and circumstances are the same and subject to the verification of such facts and circumstances on audit.

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