OECD statistics on dispute resolution under the Mutual Agreement Procedure for 2018 show a 20 percent increase in new transfer pricing disputes compared to 2017.
The latest OECD report on the current state of treaty based dispute resolution under the Mutual Agreement Procedure (MAP) process makes interesting reading. Whilst the number of new disputes continues to rise – no surprise in an uncertain post BEPS environment – there are some grounds for optimism for businesses suffering double taxation as the majority of tax administrations are now settling more cases than before with 80 percent of settlements successfully relieving some measure of double taxation.
The report collates data from 89 participating jurisdictions and inevitably the picture is better in some countries than in others. However the overall trend shows that whilst more taxpayers are using the MAP mechanism to resolve disputes, collectively tax administrations are managing to resolve more cases than before and total inventory numbers are falling.
There is less good news on lapse times to reach settlement – these have crept up to an average of 33 months for transfer pricing cases. That is still frustratingly long for business however the widespread introduction of a two year negotiation period preceding arbitration should start to have an impact, especially as more countries ratify the Multilateral Instrument.
That said the settlements that are being reached appear to be increasingly effective in resolving double taxation issues with almost 60 percent of cases where the issue is fully resolved through MAP and another 20 percent settled unilaterally or through domestic remedies. That is good news and demonstrates how, at its best, the process can deliver cost effective dispute resolution resulting in single taxation.
Much more data on the position in individual countries has been published this year. For the UK this shows that HMRC’s inventory of cases has stayed pretty stable, and is dominated by disputes with Germany, Italy, France and India. There is a clear focus on resolving older cases with 89 transfer pricing cases settled during the year. Lapse time for newer cases – submitted post 1 January 2016 is an impressive 15 months. All of this speaks well of the effectiveness of the competent authorities at HMRC and should encourage UK business to make full use of the MAP process.
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