The new HMRC Statement of Practice and MAP guidance gives further assistance to UK taxpayers seeking relief from double taxation.
On 20 February 2018, HMRC published a new Statement of Practice (Statement of Practice 1 (2018)) updating the previous Statement of Practice 1 (2011) on the Mutual Agreement Procedure (MAP). The Statement of Practice is supported by HMRC’s revised MAP guidance which went live on 1 February 2018, and reflects the outputs from the OECD’s Base Erosion and Profit-Shifting (BEPS) initiative, and the OECD MAP peer review recommendations. The final BEPS report on Action 14 (Making Dispute Resolution Mechanisms More Effective) included minimum standards on giving access to the process and resolving issues. Since then, the OECD has been undertaking a series of peer reviews to assess the effectiveness of individual countries’ MAP processes. The UK was part of the first batch of reviews in December 2016, and in September 2017, the OECD published its findings. This new guidance responds to those findings by setting out clearly how HMRC will apply them.
The UK has been widely recognised as having an effective MAP programme, with strong working relationships between the UK Competent Authorities and their counterparts in major trading partners. The OECD peer review acknowledged the UK’s compliance with the BEPS minimum standards on MAP with some minor exceptions. Many of these exceptions have been dealt with through the adoption of the BEPS Multilateral Instrument (MLI), and the UK also plans to bilaterally amend treaties not covered by the MLI.
The updated MAP guidance better reflects the post-BEPS environment, and addresses one specific weakness identified by the peer review. It makes it clearer that HMRC will grant access to MAP, even after the taxpayer and HMRC have entered into an audit settlement. Although this is established practice, the OECD review believed that some taxpayers could assume that such an agreement would prevent access to MAP, and therefore be dissuaded from making an application.
Two areas where we would have appreciated more clarity are around Brexit, and the access to MAP in relation to self-assessed transfer pricing adjustments.Whilst it is clearly difficult for HMRC to make definitive statements about the continuing access of UK taxpayers to the EU Arbitration Convention (EAC) in the light of Brexit, it is slightly disappointing to see no guidance on the current status of existing or future cases under the EAC. That said, as arbitration under bilateral treaties becomes more widespread, reliance on the EAC becomes less important. On self-assessed adjustments, HMRC have stated their willingness to enter into MAP with the relevant jurisdiction, as envisaged in the OECD Model Tax Convention Commentary for Article 25 (at paragraph 14) which interprets “…actions of one or both of the contracting states...” widely. Although HMRC provide quite a narrow example of where they might take this view, our understanding is that they will consider each case on its merits, and the example is not intended to be an exclusive indication of when HMRC would accept taxpayer-initiated adjustments into the MAP programme.
The revised Statement of Practice and associated guidance are welcome developments, which support more effective dispute resolution through better access to MAP, and in many cases to binding, mandatory arbitration. Given the inevitable increase in cross border controversy in a post-BEPS world, improved access to an effective, treaty-based dispute resolution process that will deliver single taxation is vitally important for taxpayers operating internationally.
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