On 22 November 2022 which was designated as Tax Certainty Day the OECD’s Forum on Tax Administration (FTA) held a virtual meeting to discuss issues around tax certainty. Tax officials and stakeholders participated in a virtual meeting to review the tax certainty agenda and look at ways to improve dispute prevention and resolution.
The tax certainty landscape consists of tax prevention mechanisms which include advance pricing agreements (APAs), cooperative compliance, risk assessment and audit. There are also dispute resolution mechanisms such as the mutual agreement procedure (MAP) and arbitration.
Risk assessment can be done unilaterally by the tax administration of a country, cooperatively by tax administrations or on a multilateral basis. A current multilateral initiative is the International Compliance Assurance Program (ICAP), which is a voluntary risk assessment and assurance programme facilitating co-operative engagement between multinational groups and tax administrations in the countries where they operate.
The OECD considers that dispute prevention, to the extent that it can be achieved, is a much more effective mechanism than dispute resolution, but there will always be some tax disputes arising. The OECD aims to minimise the number of disputes arising and then to facilitate effective handling of these disputes through the MAP and arbitration.
Work is continuing on APAs and on cooperative compliance. The OECD is particularly looking at implementing concepts of cooperative compliance through the ICAP; and is focusing on the practical aspects of compliance activity. On the audit side there has been work on coordinated and joint audits but this was less frequent during the pandemic. A coordinated joint audit can be more effective than two separate audits by different tax administrations. Ideally, coordinated risk assessment can be done by tax administrations through initiatives such as the ICAP.
MAP statistics
The publication of MAP statistics is part of the increase in transparency and gives detailed information on what is happening in MAP cases. There were 127 jurisdictions providing their MAP statistics for 2021.
MAP inventories have increased, and the average time to complete the MAP is relatively stable. The statistics for 2021 show a fall in new transfer pricing MAP cases and a higher number of transfer pricing cases being closed. The MAP inventory may therefore be close to stabilising; however it is not clear what effect the pandemic has had on the statistics. It is too early to conclude that the trend is towards reduction of inventories of MAP cases. The resolution of more cases with outcomes that eliminate double taxation is an achievement.
Certainty for Amount A
The certainty framework for Amount A of Pillar One provides a group with certainty if it is outside the scope of the rules in a period. With regard to advance certainty, the framework can provide multi-year certainty where groups are likely to require new methodologies and systems. Comprehensive certainty will cover all the aspects of Amount A that are not already covered by advance certainty. Unresolved disputes will be passed to a determination panel to reach a final outcome. The issue of the composition of the determination panel is still to be finalised.
Certainty for Pillar Two
In the public consultation, stakeholders emphasised the importance of tax certainty, including dispute prevention and resolution mechanisms. Priority has been given by the OECD in the past six months to ensuring there are clear administration rules for Pillar Two.
The safe harbours, which are still being developed, are seen as an important part of delivering tax certainty for taxpayers. Work is being done on a transitional safe harbour to facilitate compliance in the early years after Pillar Two is introduced, in addition to permanent safe harbours and other simplifications. Work has begun on the dispute resolution mechanisms and the instrument for delivering them.
