Enhancing Tax Certainty: OECD's Manual on Multilateral MAP & APA Procedures

The two procedures refer to different stages of the tax process, respectively the Advance Pricing Agreement (‘APA’), which is applied with the purpose of dispute prevention and the Mutual Agreement Procedure (‘MAP’), which is applied for dispute resolution purposes. The complexity of the amicable procedures stems from the lack of consensus on the definition of the multilateral case and on the cases where a multilateral solution is appropriate, as well as from the lack of consensus on the applicable legal basis.

Considering that most jurisdictions have limited experience in coordinating multilateral APA and MAP procedures, the Manual was created with the purpose of providing assistance, and is designed as a guide, both for legal and procedural aspects, based on the practice of the jurisdictions involved.

Multilateral APA and MAP procedures are considered appropriate in transfer pricing cases, as these ensure a higher tax certainty compared to bilateral solutions. Also, these can be applied in case of hybrid entities, in case of dual-residence or multiple-residence issues or for profit attribution to permanent establishments.

The Manual details the legal basis for administering multilateral cases, the procedural aspects and also includes specific examples and a recommended timeline for these cases.

As there is no clear definition of a multilateral case for APA or MAP procedures, there is no consensus on when multilateral procedures would be appropriate.

In most cases, it is expected that such cases can only be handled and resolved if bilateral tax treaties are in place among all jurisdictions involved.

Because the APA is a voluntary procedure applied by states to prevent transfer pricing disputes, there are no internationally accepted regulatory standards for granting access to this procedure (not even in bilateral APA procedures). Therefore, tax authorities have to elaborate their own rules on the acceptance of multilateral APA requests.

By contrast, the access to the MAP procedure is a right granted to eligible taxpayers, in particular for double taxation cases. Because the multilateral MAP procedure is actually a combination of bilateral MAP procedures, the rights of the taxpayers under double tax treaties and international standards remain applicable to multilateral MAP also.

The competent authorities involved in a multilateral case may agree to appoint a coordinating competent authority to assist in the management of the case, which may, for example, be the authority of the state in which the parent company of the group is resident or the state in which the company with the most complex functional profile in the transaction under scrutiny is resident.

In the specific case of MAP, the coordinating competent authority may be the one of the state where the primary transfer pricing adjustment was made.

The main tasks of the coordinating competent authority are to organise the established procedure and involve, in particular, the following:

• Acts as a main point of contact for all competent authorities involved;
• Ensures that all information pertaining to the case under analysis is made available to each of the competent authorities involved;
• Develops and updates the project plan for multilateral APA procedures.

Considering that MAP and APA procedures are intergovernmental processes through which competent authorities discuss and resolve issues related to the interpretation and application of tax treaties, the taxpayer is involved only in certain stages of the process, usually those related to the submission of applications and answers to requests for information and, subsequently, to the acceptance or rejection of agreements.

The coordinating competent authority must inform the taxpayers on the progress of the procedural stages and in respect of an estimated time for completion.

The obligations of the taxpayer include:

• Coordinating with local affiliated entities to provide information;
• Assisting the competent authorities in the information gathering stage (e.g. by providing transcripts of functional analysis interviews).

The Manual also includes a reccomended timeline for the MAP and, respectively, APA procedures.

Therefore, in the case of the MAP procedures, the proposed timeline is as follows:

• Receipt of MAP request (including all necessary information): T0;
• Notifying the other competent tax authorities: T0+4 weeks;
• Decision as to adminissibility of request: T0 + 2 months;
• Decision as to whether the objection is justified and whether a unilateral solution is possible: T0 + 3 months;
• First position paper: T0+12 months;
• Response position paper, if any: 6 months after first submission;
• Conclusion on position paper exchanges: 2-4 weeks before meeting;
• Mutual agreement between the competent authorities: T0+ 36 months;
• Approval of MAP procedure: as soon as possible;
• Exchange of closing letters: as soon as possible;
• Implementation of agreement: as soon as possible.

The timeline for the APA procedure is as follows:

• Receipt of APA request (including all the necessary information): T0;
• Notifying the other competent tax authorities: T0+4 weeks;
• Decision as to admissibility of request: T0 + 3 months;
• Preparation of a project plan: T0+4 months;
• Information gathering phase: T0+ 6 months;
• First position paper: T0+12 months;
• Response position paper, if any: 6 months from first submission;
• Conclusion on position paper exchanges: 2-4 weeks before meeting;
• Mutual agreement between the competent authorities: T0+ 36 months;
• Approval of APA procedure: as soon as possible;
• Exchange of closing letters: as soon as possible;
• Conclusions on domestic implementation, if appropriate;
• APA implementation: as soon as possible.

Romanian companies can apply for either of the procedures, depending on the case, especially given that the Manual provides clarifications regarding multilateral cases encountered in practice, particularly concerning transfer pricing.