UK: MAP requests under EU Arbitration Convention no longer accepted after 2020, possible treaty implications

UK: MAP requests under EU Arbitration Convention

HM Revenue & Customs (HMRC) confirmed that the UK will not be a party to the EU Arbitration Convention after 31 December 2020. Thus, mutual agreement procedure (MAP) requests under the EU Arbitration Convention will not be accepted after 2020.


The Organisation for Economic Cooperation and Development (OECD) in November 2020 released the most recent mutual agreement procedure (MAP) statistics covering 105 jurisdictions and almost all MAP cases worldwide. Read TaxNewsFlash

Although these MAP statistics for 2019 indicate that transfer pricing MAP cases, on average, are still taking longer than the target of 24 months under BEPS Action 14 target, in most countries there are signs of improvement—particularly for those making MAP requests in the UK.

The transparency that comes from publication of such statistics highlights the work coming from HMRC on MAP. The fact that HMRC shared with Japan the shortest average time to close transfer pricing MAP cases could suggest the threat of mandatory binding arbitration that became part of the Japan-UK income tax treaty in 2014 has been a contributing factor and that may also be expected to have effect on other bilateral working relationships for which mandatory binding arbitration has recently been, or is to be, introduced. While HMRC confirmed that requests under the EU Arbitration Convention will not be accepted after this year, mandatory binding arbitration is currently available under a significant number of the UK’s treaties with EU Member States.

The increasingly large amounts of tax under consideration related to transfer pricing (per HMRC’s recently published statistics) reinforce the importance of effective MAP to eliminate double taxation arising from HMRC’s transfer pricing and diverted profits investigations and from additional liabilities resulting from Profit Diversion Compliance Facility reports.

Multilateral action by tax authorities (such as in the International Compliance Assurance Programme (ICAP)), and in joint audit projects on, for instance, franchise fee models may have an effect, but it is too early to tell whether that may increase or decrease the MAP caseload. What is known is the latest OECD statistics show that the MAP inventory globally, and for HMRC, has increased for transfer pricing cases.

As the OECD itself recognised in launching the public consultation on BEPS Action 14, there is more to be done to improve the effectiveness of MAP. There is an expectation that a twin-track approach will continue to be pursued in enhancing the minimum standard for everyone, and also encouraging treaty partners to go further to make the MAP process quicker and more efficient. Technology is likely to assist, and there is an expectation is that the large number of virtual Competent Authority meetings taking place this year has demonstrated its viability during the COVID-19 pandemic.

Competent Authority improvements are not restricted to MAP. Current experience shows acceleration by HMRC of the discussion process with certain treaty partners more widely—for example, to obtain greater flexibility around site visits under the Indian advance pricing agreements (APAs). Another expectation is that the OECD Forum on Tax Administration Group will focus on multilateral MAPs along with APA process improvements.

In addition to the OECD numbers, there is detail available on individual countries. The figures for the UK show a persistent “rump of” older (received before 1 January 2016) transfer pricing MAP cases with only five of the 72 UK settlements being older cases. This is likely to reflect that some bilateral Competent Authority working relationships function much better than others. Additionally, particularly complex cases involving large amounts may take much longer to resolve, and in that scenario, a strategy of seeking quick MAP outcomes wherever possible would appear to free up resources for the most challenging cases.

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services:

Nick Stevart | + 44 207 694 1237 |

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