The 2017 Mutual Agreement Procedure statistics show tax authorities are closing more cases but the number of new requests is increasing.
The OECD has published Mutual Agreement Procedure (MAP) statistics for 2017 covering 85 jurisdictions, giving helpful intelligence about the elimination of double taxation post-BEPS through the mechanism provided by bilateral tax treaties. The details for the Transfer Pricing cases (including attribution of profits to a permanent establishment) show the inventory of Transfer Pricing MAP cases overall has declined significantly suggesting tax authorities have prioritised resolving these disputes in line with the commitments made during BEPS Action 14 (Making Dispute Resolution Mechanisms More Effective).
The statistics suggest that tax authorities are seeking to prioritise older disputes whilst the number of post-2016 settlements, with an average time-take of seven months, indicates many new Transfer Pricing MAP requests are quickly resolved. The latter could reflect a growing willingness to unilaterally relieve well-founded adjustments or withdraw poor ones and probably reflects a welcome focus and prioritisation of Competent Authority resources. Transfer Pricing cases continue to take a lot longer to settle than other MAP cases as would be expected from their complexity.
The breakdown per reporting jurisdiction shows a wide variation between different countries suggesting that practices and challenges vary. It is pleasing though to see that a large number of tax authorities are engaging and resolving Transfer Pricing disputes at MAP, showing that improvements introduced by BEPS Action 14 are starting to have a real impact in practice.
The UK’s inventory of Transfer Pricing MAP cases has risen from 209 to 252, despite HMRC’s success in increasing the number of settlements, because of a significant increase in the number of new MAP requests being received. This is consistent with the increased focus of HMRC and their treaty partners on challenging Transfer Pricing risks and the growing inventory of post-2016 cases (which now represent 42 percent of the total).
The number of new Transfer Pricing MAP requests shows that tax administrations have maintained and/or increased their focus on Multinational Enterprises and cross-border related issues in 2017 and this trend is inevitably going to continue with a consequential rise in controversies that result in double taxation.
Overall these statistics confirm the need for businesses to proactively assess and actively manage their transfer pricing and related cross-border risks. The good news is that dispute resolution through MAP continues to show signs of improvement. Whilst successfully navigating the process to achieve a satisfactory outcome can be challenging and complex, business should take encouragement from this data, showing that treaty dispute resolution mechanisms are increasingly delivering timely and cost effective solutions.
For further information please contact:
+44 20 7694 1237
+44 20 7694 4335
© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.