On 24 February 2022 the OECD announced that Chile has joined the International Compliance Assurance Program (ICAP).
The ICAP is a voluntary risk assessment and assurance program whose objective is to facilitate greater cooperation in tax compliance issues between multinationals and the tax administrations of the countries where they operate. The ICAP facilitates discussions between the multinationals and tax administrations and promotes the effective use of transfer pricing documentation, including the use of the master and local file and the country-by-country report, to provide more information for the tax administration and achieve greater certainty for the taxpayer.
The original ICAP pilot program was launched on 23 January 2018. The participating tax administrations were Australia, Canada, Italy, Japan, the Netherlands, Spain, UK and US. The risk assessment of multinationals through the ICAP program commenced in the first half of 2018, and later a second pilot program (ICAP 2) was held with participation by a greater number of tax administrations.
On 8 December 2020 the FTA agreed that the ICAP would be made into an established program to enable tax administrations to assess the transfer pricing risk of multinational enterprises, with an expanded number of countries involved. A total of 23 countries are now taking part in the program.
The website of the OECD’s Forum on Tax Administration includes a list of participating countries in the ICAP and a list of answers to questions frequently asked by multinational groups about the ICAP.
ICAP Handbook
The International Compliance Assurance Program Handbook for Tax Administrations and MNE groups was issued by the OECD on 18 February 2021. The publication outlines important features of the ICAP and considers its advantages or disadvantages compared to other methods of obtaining tax certainty such as advance pricing agreements (APAs), the standard risk assessment documentation and the mutual agreement procedure (MAP).
The ICAP Handbook considers that the benefits of participation in the ICAP include more informed and targeted use of CbC reports and other information in risk assessment. There is also more efficient use of resources, as discussions can take place between a multinational and a number of tax administrations simultaneously, either by means of multilateral engagements or through the lead tax administration. There is no need for a number of separate enquiries, and this reduces compliance time and costs for all parties.
The Handbook notes that the ICAP can lead to a more cooperative relationship between the multinational and tax administrations; and could mean that fewer disputes are taken to the mutual agreement procedure. The ICAP can therefore offer a clearer path to obtaining tax certainty.
Participation in the ICAP
The Handbook outlines the selection process through which multinationals can apply to participate in the ICAP program. A multinational considering participation can contact the tax administration in the jurisdiction where its ultimate parent entity is resident. The next application deadline for submission of an application to participate in the ICAP is on 31 March 2022, and there is a further deadline on 30 September 2022.
