On 1 February 2023 the OECD released the Manual on the Handling of Multilateral Mutual Agreement Procedures (MAPs) and Advance Pricing Arrangements (APAs) (the MoMA).
Multilateral MAPs and APAs can offer greater tax certainty to both taxpayers and tax administrations but most jurisdictions have limited experience in coordinating bilateral MAP and APA cases in a multilateral situation. The MoMA gives guidance on multilateral MAP and APA processes from a legal and procedural perspective using practical approaches, and sets out the actions required from taxpayers to allow tax administrations to conduct multilateral MAP and APA cases.
In response to a survey, several jurisdictions noted that multilateral MAPs or APAs can be the most appropriate dispute prevention tool in cases where there are group service providers for multiple jurisdictions; trading companies in multiple jurisdictions; or permanent establishments in multiple jurisdictions. They offer greater certainty than bilateral measures in these situations.
Multilateral MAP / APA cases present various challenges, for example there is no clear definition of a multilateral case and no consensus on situations where multilateral solutions would be appropriate. Jurisdictions do not agree on the most appropriate legal basis for dealing with multilateral cases, such as the need for treaty relationships between all the relevant jurisdictions concerned. Other issues concern the effect of filing periods for MAP cases under tax treaties or domestic time limits, the method of conducting multilateral procedures, and information sharing with multiple jurisdictions.
It may be difficult for a single transfer pricing methodology to be applied to the wide variety of facts, transactions and jurisdictions concerned in a multilateral case, unless the methodology can be appropriately adapted. The OECD guidelines note that all the participating jurisdictions should ensure that the methodology, suitably adapted if necessary, represents an appropriate application of the arm’s length principle in the circumstances in their jurisdictions. Issues also arise in a multilateral case because several competent authorities are involved in a process that was designed for a bilateral procedure, for example there is an issue surrounding the extent of information sharing between all the affected jurisdictions.
The Manual provides guidance on the definition of a multilateral case, and the legal basis for handling multilateral cases. Practical guidance is given on requests filed in multilateral cases. The relation of multilateral procedures to the BEPS Action 14 minimum standard is examined.
The Manual also provides guidance on the way to approach the other jurisdictions involved in a multilateral case, and the approach to discussions and the coordination of procedural matters. For example, the discussions in a MAP or APA case are initiated by sharing of position papers by the competent authorities. They should provide a reasoned position on how the case should be resolved and present the treaty and domestic law basis for the tax administration position taken. There is also important guidance on the interaction of the available domestic procedures with multilateral cases. The Manual also covers the implementation of the MAP agreements and the role of arbitration where no MAP agreement is reached.
The Manual contains a number of simplified examples of transactions that would benefit from a multilateral approach. Also, a timeline is given for carrying out a typical multilateral MAP or APA case.
