Comments on revision of competent authority revenue procedure.

• Position: Tax Executives Institute's comments on the IRS' proposed revision of Rev. Proc. 96-13

July 19, 2000

On July 19, 2000, TEI President Charles W. Shewbridge, III sent the following letter to Elvin T. Hedgpeth, IRS Deputy Director, International, concerning the revision of Rev. Proc. 96-13, which deals with the procedures for requesting Competent Authority assistance under an applicable income tax treaty. The letter was drafted under the aegis of TEI's International Tax Committee, whose 1999-2000 chair is Michael P. Boyle of Microsoft Corporation. Materially contributing to the preparation of the comments were G. Richard Eigenbrode of Applied Materials, Inc., Thomas R. Howe of Unisys Corporation, Jeffrey J. Lonsdale of Lamar Hunt Family Companies, Roger H. Newman, Jr. of Microsoft Corporation, and Alan B. Richer of General Electric Company.

On behalf of Tax Executives Institute, I am pleased to respond to the Internal Revenue Service's request for comments on the proposed revision of Rev. Proc. 96-13, 1996-1 C.B. 616, which deals with the procedures for requesting Competent Authority assistance under an applicable income tax treaty. Representatives of TEI met with representatives from your office on March 16 to discuss substantive changes to the procedure. This letter confirms, supplements, and elaborates on those discussions.

The U.S. Competent Authority generally assists taxpayers with respect to matters covered in the mutual agreement procedure provisions of tax treaties. Taxpayers may request U.S. Competent Authority assistance when they consider the actions of the United States, the treaty country, or both will result in taxation contrary to the provisions of the applicable treaty. All requests for Competent Authority involvement must be submitted in accordance with Rev. Proc. 96-13. As the number and size of cross-border transactions increase and U.S. treaty partners devote more resources to double taxation issues (particularly in the transfer pricing and permanent establishment areas), the Competent Authority process has gained in importance.

TEI commends the IRS for seeking taxpayers' views on how this important facet of U.S. tax administration can become more effective. Although the negotiations are government to government, taxpayers are parties in interest to the negotiations. If the Competent Authorities are unable to reach an agreement, it is the taxpayer that will suffer. The revised procedure should be designed to reach a resolution of double taxation issues in as expeditious a manner as possible. Specific aspects of the Competent Authority process are discussed below.

Effect of IRS Reorganization

As part of the modernization of the Internal Revenue Service, the Competent Authority function has been moved to the new Large and Mid-Size Business (LMSB) Division. The U.S. Competent Authority, imbedded in the new Office of the Director, International, now reports to the LMSB Commissioner. The office will handle all Competent Authority issues, however, whether or not generated within the LMSB Division. International examiners will also be in the LMSB Division.

TEI believes it is important that the reorganization of the IRS not be perceived as diminishing either the significance or the autonomy of the Competent Authority function. The Competent Authority function has traditionally...