TEI comments on BEPS Action 14: Effective Dispute Resolution.

• Position: TECHNICAL SUBMISSIONS

On January 15, TEI submitted comments to the OECD on its Public Discussion Draft regarding BEPS Action 14: Make Dispute Resolution Mechanisms More Effective. TEI's comments emphasized the importance of fair, timely, and effective dispute resolution mechanisms to taxpayers as a means to relieve double taxation. The Institute also recommended that double tax treaties include an arbitration process to settle disputes between countries that cannot be settled by the respective Competent Authorities in a timely manner. TEI's comments were prepared under the aegis of TEI's European Direct Tax Committee, whose chair is Nick Hasenoehrl. Benjamin R. Shreck, TEI Tax Counsel, coordinated the preparation of TEI's comments.

On July 19, 2013, the OECD published an Action Plan on Base Erosion and Profit Shifting (hereinafter the Plan) setting forth 15 actions the OECD will undertake to address a series of issues that contribute to the perception that individual countries' tax bases are being eroded or profits shifted improperly. Pursuant to Action 14 of the Plan, Make Dispute Resolution Mechanisms More Effective, the OECD released a public discussion draft on December 18, 2014 (hereinafter the Discussion Draft or Draft). The OECD invited interested parties to comment on the Draft's recommendations no later than January 16, 2015. On behalf of Tax Executives Institute, Inc. (TEI), I am pleased to respond to the OECD's request for comments.

TEI Background

TEI was founded in 1944 to serve the needs of business tax professionals. Today, the organisation has 56 chapters in Europe, North and South America, and Asia. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. Our nearly 7,000 individual members represent over 3,000 of the largest companies in the world. (1)

TEI Comments

General Comments

The importance of adequate and effective dispute resolution mechanisms to taxpayers cannot be overstated. Along with uniformly applied, consistent, and predictable international tax rules, effective dispute resolution provides taxpayers with crucial legal certainty to remedy the international trade barriers caused by double taxation. (2) A comprehensive legal framework of dispute resolution that includes domestic remedies as well as mutual agreement procedures (MAP) and arbitration under double tax treaties would provide this needed certainty. It is imperative that these mechanisms be robust and reliable. They should work in a transparent, consistent and expeditious manner and be accessible by way of right for taxpayers, in both bilateral and multilateral settings.

The Discussion Draft acknowledges that, as the BEPS project moves from the final OECD reports to implementation by Member and other States, disputes and controversy will naturally increase, perhaps substantially, as taxpayers and tax administrators grapple with the new rules. (3) This will make bilateral and multilateral dispute resolution mechanisms even more important under a post-BEPS international tax regime. Regrettably, the current MAP process suffers from many deficiencies. These include a lack of transparency, the inordinate length of the process, and issues related to the independence of Competent Authorities, as discussed below.

Transparency of Process

The Discussion Draft acknowledges that where procedures for accessing the MAP process are not transparent or are unduly complex, taxpayers may forego the process and suffer unrelieved double taxation or be improperly denied treaty benefits. (4) Moreover, it is too often the case that once a taxpayer has successfully invoked the MAP process the settlement decided upon by the Competent Authorities does not appear to generally reflect the underlying treaty rules or the position advanced by the taxpayer. This perception will only grow with the potential addition to many double tax treaties of the principal purposes test devised under BEPS Action 6. Adding to taxpayer difficulties is that it often takes considerable time and expense, including in most cases the utilisation of an advisory firm, to prepare and submit a proper MAP request, which is then (it seems) sometimes given little credence by the Competent Authorities when deciding the case. The Discussion Draft acknowledges in...