Australia: New MAP guidelines, arbitration arrangements for resolving international tax disputes

Australia: New MAP guidelines, arbitration arrangements

The Australian Taxation Office (ATO) updated the guidelines for the mutual agreement procedure (MAP) and arbitration arrangements. The updated guidelines reflect modifications made (or to be made) in some of Australia’s tax treaties made under the “multilateral instrument” (MLI).

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The OECD’s base erosion and profit shifting (BEPS) Action 14 (minimum standard) seeks to improve the resolution of tax-related disputes between jurisdictions. Although many existing tax treaties have already contained a MAP provision to provide a process to resolve such disputes, further effort is required to provide that access to MAP is available and that MAP cases are resolved within a reasonable timeframe and implemented quickly. Further, optional articles under Part VI of the MLI provide for an independent and binding arbitration when issues remain unresolved under the MAP.

The information on the ATO’s website provides guidance to address common concerns of taxpayers that wish to understand the procedures to relieve double taxation or resolve treaty-related tax disputes and issues in interpreting or applying a tax treaty under the MAP and arbitration.

KPMG observation

Australia is viewed as having a good track record for relieving double taxation under its MAP processes. However, the process is often resource intensive and drawn out, without any certainty of ultimately reaching full double taxation relief.

The adoption of arbitration arrangements is seen as an appropriate step to a more efficient and robust international tax system. Further, for some treaty jurisdictions, the arbitration arrangements may be available for current MAP cases in instances when companies have found the competent authority process to be delayed or just simply unable to resolve the matter.

MAP guidance

The MAP generally provides a dispute resolution facility under a tax treaty when a taxpayer considers the actions of one or both jurisdictions result in taxation not in accordance with the tax treaty.

Article 16 of the MLI provides that, when the case is justified for requesting consideration under the MAP, the competent authorities are to endeavour to resolve the case together by mutual agreement on the interpretation or application of the tax treaty and also shall implement the agreement reached.

Australia has adopted Article 16 of the MLI without reservation to include the minimum standard for MAPs under all covered tax agreements. The ATO published a table on its website setting out the treaties affected by the MLI and when the modified treaties come into effect. To date, 19 of the 33 countries with which Australia has a tax treaty have been (or will soon be) modified by the MLI.

The ATO has provided the following in relation to the MAP:

  • The time limit in which a taxpayer may seek a MAP is generally within two or three years of the taxpayer first being advised that it is to be (or likely to be) taxed not in accordance with a treaty (however this time limit varies between tax treaties).
  • The ATO has committed to the OECD’s recommended average timeframe of two years to resolve MAP cases.
  • Any MAP agreement will generally be implemented despite any domestic time limits (however, if a treaty does not include a time limit on implementing the MAP outcome, the time limits under domestic law apply).

Further, the ATO outlined the circumstances that may warrant a MAP request, most notably highlighting that cases involving the application of Part IVA of the Income Tax Assessment Act 1936 cannot be resolved under an MAP.

In addition, the ATO has provided an explanation on how to request a MAP and the process by stages, along with information required to be disclosed by the taxpayer and actions that may be taken by the taxpayer or the competent authorities.

KPMG observation

The amendments under the MLI would make the MAPs more efficient and user friendly compared to the current environment. Currently, MAPs generally require a significant degree of cooperation between the relevant competent authorities—and this is greatly resource intensive, with taxpayers likely to experience significant wait periods, particularly in situations involving the competent authorities of smaller countries. Further exacerbating this issue is the risk that the taxpayer may not obtain a relief from double taxation after all.

Arbitration

Australia has already adopted the mandatory binding arbitration provisions contained in Part VI of the MLI. In some of Australia’s tax treaties, independent and binding arbitration is provided for if the competent authorities involved in the case could not reach a mutual agreement within two to three years (depending on the relevant tax treaty).

The ATO has published a table to list the tax treaties which have (or are expected to have) arbitration provisions, together with the eligibility period and the date that the arbitration provision is effective for MAP cases presented on or after that date. At present, it is expected that 16 of Australia’s tax treaties will be modified by the MLI to provide for mandatory binding arbitration. Further, two existing treaties have already provided for arbitration.

KPMG observation

Arbitration is viewed as greatly contributing to user accessibility of the MAP process. When complex international tax matters are subject to challenge by tax administrations, the MAP route may now help better resolve such issues as an alternative to settlement strategies that have historically resulted in double tax outcomes.


For more information, contact a KPMG tax professional in Australia:

Peter Madden | +61 2 9335 7500 | petermadden@kpmg.com.au

Glen Hutchings | +61 2 9335 8634 | ghutchings1@kpmg.com.au

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. 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. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

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