Nations Miss OECD’s Time Frame for Closing Transfer Pricing Cases

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By Sony Kassam

The U.S. and 47 countries took an average of 30 months to resolve transfer pricing disputes in 2016, missing the OECD’s goal of a 24-month time frame.

Other mutual agreement procedure (MAP) cases took less time to complete at an average of 17 months, according to the Inclusive Framework’s 2016 MAP statistics published by the Organization for Economic Cooperation and Development Nov. 27.

Jurisdictions that reported MAP data collectively had an inventory of about 8,000 cases, the OECD said. MAP cases seek to resolve double-taxation disputes between countries.

Action 14 of the OECD’s 15-item action plan to combat base erosion and profit shifting (BEPS) is devoted to improving the dispute-resolution process and requires MAP cases to be resolved within 24 months. The action, released in the October 2015 BEPS report, requires countries to adopt the OECD’s framework for reporting on cross-border tax disputes.

New Reporting Approach

Members of the Inclusive Framework—the nations signing on to the BEPS project—reported their 2016 MAP statistics under the new collaborative approach. That approach distinguishes transfer pricing cases from other MAP cases. The transfer pricing category comprises cases where a taxpayer’s request relates to either the attribution of profits to a permanent establishment or the allocation of profits between related-party groups.

“Over 85% of MAPs concluded in 2016 resolved the issue,” OECD said. “Almost 60% of MAP cases closed were resolved with an agreement fully resolving the taxation not in accordance with the tax treaty and almost 20% of them were granted a unilateral relief while almost 5% were resolved via domestic remedy.”

The MAP data is further divided into cases initiated before Jan. 1, 2016, and those initiated after that date for a given jurisdiction. For cases started before Jan. 1, 2016, countries can follow their own computation rules. For the latter set, countries must follow the OECD’s MAP statistics reporting framework computation rules, and cases initiated in one country are also reported in the other country involved.

The organization also published transfer pricing MAP statistics per country.

MAP Peer Reviews

The OECD is requesting taxpayer input for Stage 1 peer reviews of the following countries’ MAP procedures and related issues: Australia, Ireland, Israel, Japan, Malta, Mexico, New Zealand, and Portugal.

Taxpayers are to submit their input by Dec. 22. The peer reviews are part of the OECD’s initiative to measure the progress of the Inclusive Framework and their commitment to Action 1. Two sets of countries have completed the first stage of the peer review process and another set of countries’ peer reviews are underway, the OECD said.

Stage 1 involves an initial evaluation of a country’s MAP procedure, while stage 2 involves a follow-up on a country’s progress in modifying their dispute resolution mechanisms based on the OECD’s suggestions for improvement.

To contact the reporter on this story: Sony Kassam in Washington at skassam1@bloombergtax.com

To contact the editor responsible for this story: Kevin A. Bell at kbell@bloombergtax.com

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