Panel 3: Protection of Taxpayer Rights in Multi-Jurisdictional Disputes

Panel 3: Protection of Taxpayer Rights in Multi-Jurisdictional Disputes


PHILIP BAKER: Good afternoon everybody and welcome to
the third of the sessions in the second
International Conference on Taxpayer Rights. This afternoon’s session
is entitled Protection of Taxpayer Rights in
Multi-Jurisdictional Disputes. And we were very conscious
in looking at this topic that there may be some
people in the audience, who are completely aware
and have been involved in MAP and MBA: MAP, Mutual
Agreement Procedure, MBA, Mandatory Binding
Arbitration. Then there may also be some
people who have heard of these things, but have
never actually been involved. So there’s going to be an
element here of explaining the issues and then
focusing on taxpayer rights particularly. Let me introduce
our audience, panel, I’m sorry. In the middle of the panel
is Cora O’Brien from the Irish Tax Institute. To my left is Mary Bennett
from Baker McKenzie. And on the far side is
Katerina Perrou from the IBFD. Sadly, we were to have
had a fourth panel member, Michael Sell from the
German Federal Ministry of Finance. But as some of you may
know, there is a strike preventing flights
from Berlin to Vienna. And he only knew this
morning, he was going to be unable to fly. And we talked about –
well, I emailed by coming by train, but he had to
get back for a meeting. So unfortunately, Michael
will not be with us there. So it’s just the three
members of the panel. To give you an overview of
what we’re going to cover, we’ve divided this topic
really into four areas. We’re going to start
with some background explanation. An outline of cross-border
dispute resolution, and a little bit about taxpayer
and tax authority experience of the
current system for multi-jurisdictional
resolution of disputes. Then we’re going to
start moving towards the taxpayer right side with a
presentation on fair trial rights in general
and in principle. And then to delve a bit
more into detail, we’re going to look at specific
aspects of the fair trial rights. And we’ll take a break
after that, for some questions and comments. Because we think that
by then, members of the audience will probably
have some comments you want to make, some
questions you want to fire at us. Given that there’s time,
we will end up by asking the question, whether the
current proposals – that there are two proposals on
the table at the moment, to introduce mandatory
binding arbitration. One of them is in the
Multilateral Instruments, which is implementing
the BEPS. And the other one is an
EU draft directive on cross-border resolution
of tax disputes. And if we have time, we’ll
raise the question for discussion: Do those
current proposals respect or enhance
taxpayer rights? We’ve divided these topics
up between us, so that different members of the
panel are contributing on different topics. So there’s going to be
quite a bit of to-and-fro between the panel
desks and the lectern. And if I may, I’m going to
immediately start off the first of the topics, the
outline of the issues, by handing over to Cora,
who’s going to be the first speaker
on this topic. So Cora, over to you. CORA O’BRIEN: Thank you,
Mr. Chairman and thank you organizers for
this opportunity. I am speaking to you
today from a stakeholder perspective, so just
to explain to you very briefly what my
background is. I’m the Policy Director
with the Irish Tax Institute, and we have
about 5,000 members. I suppose they’re working
in Ireland, but have a lot of kind of global and
international experience, by virtue I guess of the
type of economy that we have. So in preparation for
today, I really spoke quite extensively to the
membership and just to get their experience of issues
to do with cross-border disputes. So my contribution is very
much kind of a practical, this is what is happening
on the ground, in terms of disputes, and then
leading up really into the discussion on rights. So I’m going to
cover a few things. Double taxation or in
fact, the prospect of multiple taxation really,
which is growing as the complexity of business
transactions grows. I will also talk about
some of the reasons why, apart from the business
changes and the increased globalization, and
increasingly complex business models that
companies have, we can expect more in the way
of cross-border disputes, because of a raft of
changes that are happening at the minute, in terms of
changes to the global tax landscape, which you
probably know about. My aim is really to try
and tie that together for you, to give you a picture
of a vista, if you like, of how disputes already
are quite significant and if anything, are
going to grow possibly exponentially. I’ll talk a little bit
at the end about the EU Arbitration Convention and
some of the changes that have been mentioned. Probably the bulk of my
comments will relate to taxpayers’ experience
of dispute resolution. And then, I think it’s
interesting as well to look at some alternatives
to the dispute resolution mechanisms. Because rather than
getting into these protracted and difficult
disputes, there are initiatives that are
taking place in many countries, to get advanced
assurance or to get means of agreements so we
don’t end up in dispute. And then finally, as I
say, the discussion on taxpayer rights. So, some of you may know
that in recent times, the European Union has done a
consultation really on its Arbitration Convention. And at that time,
when it was surveying stakeholders, 91 percent
of companies said that they actually expect to
have more double taxation, and more double taxation
will lead to more disputes. There are differences of
opinion, as to whether this is going to be a
short term phenomenon, or whether sort of the longer
term outlook is kind of more disputes. And that’s why it’s
particularly urgent that we’re talking about
this issue now, and particularly urgent that
we talk about some of the implications for rights. So this little graphic is
really intended to just explain some of the
reasons why we’re facing more disputes. If I take the BEPS
initiative first of all – so I’m sure most people at
this stage, I think even most members of the public
at this stage have heard of this acronym, Base
Erosion and Profit Shifting. And there is no doubt that
it was a huge achievement of the OECD to get
consensus on the 15 actions in BEPS. But I suppose possibly,
the consequence or the price of getting that
consensus was that it had to allow for lots of
optionality, in terms of implementation. And we are at this process
of implementation right now. So we’re right in the
middle, if you like, of the actions being
agreed and countries are implementing them. The difficulty for
taxpayers is that they’re implementing them
at a different pace. So, some counties are
implementing them faster than others, in a
different order or sequence. And countries have
differing interpretations of the rules. And then the rules
themselves have embedded options in them. So there are choices
that countries can make. And for a lot of
businesses, it’s hugely complex just to keep up
with what’s happening. I think every day in my
inbox, I probably get three or four bulletins
on such and such a country having implemented, see
by country by country reporting, or transfer
pricing changes. It’s actually quite
difficult, not alone to understand the rules, but
just to keep up with who has implemented what,
and in what order. So it’s very complex, and
different countries have different approaches to
how they interpret rules. They might have
domestic guidance. They might have case
law, in terms of interpretation. So businesses are trying
to keep up with that as well. So that landscape
is quite tricky. Then we also have, sort of
linked into that and some of the comments earlier
on the backdrop to transparency, there’s
hugely more visibility now to tax authorities. And that is going to –
with the first CRS reports coming in, country by
country reports starting to come in towards the
end of next year, that is really going to ramp up. And that is in addition to
exchanges that are going to take place, not only
of country by country reports, but also of tax
rulings that companies have got, and advance
pricing agreements where you agree up front, if you
like what your transfer pricing treatment is going
to be, and other similar issues. So tax authorities are
going to have all this information. But having all this
information, that onus on them to actually use the
information, is obviously going to increase as well. There will be government
expectations on tax collection. So they’re under pressure,
if you like, from their sort of governments and
the political world to collect more tax. And so, we’re going to see
the implications of the transparency agenda,
resulting in probably more robust exchanges from
international tax authorities. And again, that is
potentially going to lead to more disputes. And the world of rulings
is difficult as well, because we have exchange
of rulings in the EU. We now have automatic
exchange of rulings. And we also – so all of a
sudden, a company has to think, “Well, a ruling
that I’ve got in one country might actually is
now going to be exchanged with perhaps 15
other countries. And all of a sudden, it
has implications for my position in
those countries. And I can expect the
tax authorities in those countries to start
scrutinizing it, and it could lead to
questions there.” So that context
is changed. Also in relation to
rulings, we have the European Union looking at
rulings from a state aid perspective. And the retroactive impact
that that could have is worrying some businesses,
in terms of, can we have certainty? How do we know that an
opinion that we got or a ruling that we got, we can
rely on, into the future? So just getting rulings
is more difficult for companies. Tax authorities can be
more reluctant to give rulings, because they
are concerned about the implications of
giving rulings. And even if you get a
ruling, it’s going to be exchanged and you’re
possibly looking at it being scrutinized. So rulings and opinions,
people have different perceptions of them. We talked a bit about
the media this morning. But in the vast, vast
majority of cases, they are there to give
businesses certainty, so that you don’t trip
accidentally into noncompliance and trip
into a future dispute. And then finally, I
suppose we have – as if that wasn’t complicated
enough – we have a lot of other reforms and sort
of suggested changes in policy. And we all know that the
elephant in the room is what’s going to happen in
the U.S., and how is that going to affect other
countries internationally? How will it end up working
in conjunction with the BEPS changes? How will the U.S. tax rules knit together
with the BEPS changes? And there’s uncertainty
around the UK and Brexit. There are unilateral
actions that have been taken by certain
countries. For example, the Diverted
Profits Tax, and how does that sit, or does it sit
comfortably with BEPS? And then for Europeans, or
businesses with European operations, we have CCCTB
and the prospect of kind of two totally different
tax regimes having to sit together. One based on arm’s-length
on transfer pricing and one based on formulary
apportionment. And however you feel about
that, it is certainly complex. On the one hand, it could
lead to less disputes within the European Union. But on the other hand,
it’s difficult to have those two systems
operating together. So, as our chairman said
at the beginning, there are different routes
to dispute resolution. Mary is going to talk a
little bit about double tax agreements, and MAP
and arbitration in the context of double
tax treaties. And later on in the
program, we’ll come back to the EU Arbitration
Convention and talk a little bit about that. So these are different
routes, and you always have the option of going
sort of through the domestic courts in
the country as well. If for example, it’s an
issue where you need a legal interpretation, or
perhaps the counterparty has losses, and so MAP
wouldn’t really suit them in that situation. So those are the routes
to dispute resolution. A lot of these are being
looked at and there are changes in prospect, and
we talk a little bit about that. So the taxpayers’
experience of MAP. [Pause] And I suppose the diagram
is intended to convey the fact that by definition,
what is happening when you enter dispute resolution
under MAP is that – I think we’ve had this
analogy earlier actually with the tug of war. So we’re obviously very
much into violent sports here. But countries are really
– countries are trying to agree, is probably the
polite term, about how profits should be
allocated between the two countries, in terms
of the business. The difficulty is that
there is a taxpayer there as well, and they’re not
– they’re involved to some extent in the process. But really, all the action
is happening in the room without them, and that’s
fundamentally what’s going on in MAP. And that came across in
everybody that I spoke to, in terms of
their experience. They’re feeling excluded. There’s huge uncertainty
around the process and it’s very costly. So the exclusion bit,
as one of the companies explained to me, the only
part of the process that we really get involved
in is that we open the envelope, and we provide
the information, and we pay the bill. And that’s really it, and
we don’t have a lot of access to the process in
between those different stages. So they feel that they’re
providing a lot of information and they’re
giving it to the competent authorities, so that they
can agree the liability. But because they’re not at
the table, they don’t see how the case is being
framed from the two sides. They don’t see how
their situation is being described. They don’t have the chance
to kind of retort or, you know, if the facts aren’t
right, to correct them. And they feel, I suppose,
that maybe that’s not the fairest way to do it. They don’t have
a right of reply. And when the decision is
finally reached between the two competent
authorities, they’re not forced to accept
the decision. But that is the decision,
if you like, and they can’t change the decision. So they more or less
have to take or leave it. And there is a huge
amount of uncertainty then attached to that. So what’s the
outcome going to be? You know, will there
be an outcome at all? Because at the minute,
there’s no guarantee that you will have an outcome. Hopefully, some of the
improvements to the systems will deal
with these issues. But at the minute, in a
lot of cases, all you can do is go to your competent
authority and ask for MAP. You’re not necessarily
going to get it, and you’re not necessarily
going to get a fixed and final outcome from it. You don’t know how long
it’s going to take, or what it’s going to cost. And you’re not sure
that even if there is an outcome, that it
will be implemented. And in terms of
uncertainty, I got a little bit of feedback
from the companies. That there have been
instances where there has been a sort of
counterparty assessment issued, which hasn’t
really given them much information about the
transactions that are actually being looked at. But is more in the line
of, “Well, you’re paying X in our country. And you know, we actually
think it should be 2X or 3X or 5X.” And that’s a very
difficult – it doesn’t happen that often. But when it does happen,
it’s very hard to deal with because there
aren’t specifics. The MAP process itself, so
there is a two-year clock in a number of cases in
a number of countries. But taxpayers are actually
quite confused on the ground, as to when that
clock starts, because you can have a lot of
backwards and forwards looking for information,
and then further information and
explanation. So when does the two-year
clock start and when does it stop? There is a lot of
information required. The scope and look back
period can be different depending on what
countries are involved. So in Ireland, we
generally have a four-year look back period, but a
lot of countries would have up to ten-year
look backs. And so companies probably
have to plan for the longest possible look back
period, and make sure they hold the records for
that amount of time. And sometimes, they don’t
get any updates in the process, and they don’t
get to see the documents, which kind of leaves
them in the dark. And they don’t have
visibility of other cases and other kind of fact
patterns, and whether theirs is being
treated differently. So all this uncertainty
leads to a lot of cost. It’s very heavy on
internal resources. You can get a very broad
scope of information requests from the tax
authorities, looking for what you might think are
actually very unconnected bits of information,
and there was a case of Berlioz, which dealt
with that issue. As I’ve said, you can
have very long look back periods. At a very practical level,
documentation is often actually located in other
countries, by the very nature of these issues. And you could well find
that a lot of the people who were involved in the
transactions at the time have actually gone,
particularly in the ten-year look back cases. Professional fees are
obviously quite an issue and quite expensive. And there’s other
ancillary costs, you may have to translate
information, etc. So in some countries, you
have to pay up front, the tax that’s in dispute. Again, we don’t do
that in Ireland. But in other countries,
they do look for that. So that’s obviously
a cash cost. And then, even if you
don’t have to pay the disputed tax, there can
be quite heavy interest charges as well. So particularly for SME’s
and smaller businesses, in many cases, the cost of
that is just not worth the benefit of going
to dispute. And they basically would
be prepared to live with the double taxation,
rather than go into a MAP or dispute resolution. So delays is kind of
obvious what delays mean in the process, and they
are a very practical issue. We also have found, from
our members, that you can get situations where
companies are encouraged, that in exchange for not
entering into the MAP process, there will be
a reduced assessment. You know, and that is a
very difficult issue to deal with and practice. And then, there are also
sort of very real issues, which are hard to describe
what are very real on the ground. So you could have two
competent authorities that have say, 20 or 30 cases
on their list between them, of which
you’re just one. And this may or may not be
true, but I suppose it’s this issue that perception
can be important. Some of the taxpayers
feel, “Well, we’re one of 20 or 30. If the competent
authorities want to sign off on this batch, where’s
my little set of facts going to end up
in all of that? And is that really
fair and transparent? And because I can’t see
it, I really don’t know how that worked out.” Taxpayers have also found
cases, where information that was provided through
MAP, was then used to issue assessments
for future audits. And that has sort of made
them a little bit careful or concerned about: I’m
giving this information for MAP, but I could find
myself with it opening a big audit issue
for the future. Because of all the
different requirements, there’s going to be
training and resources within tax authorities. It’s a huge area. I know in Irish revenue,
there has been money set aside for lots of new
resources in competent authority. I’m sure it’s not enough,
and I’m sure that’s the case for lots of other
tax authorities as well. So, people are going to
need top class negotiators really doing their
MAP negotiations. And they’re going to need
funds dedicated to this process to protect the
tax base for the country. Confidentiality is
obviously an issue. Some of the new proposals
are looking at publishing information. And if not full
information about the decisions, then abstract
about the decisions. And so, it’s important
that confidentiality is protected then. And then there’s also
just sort of worries about multi disputes. And how are they –
when BEPS becomes fully implemented and all this
exchange of information filters through, you could
have ten countries coming looking for a slice of
the pie that wasn’t there before. So I guess broadly, the
wish-list that I was given was more taxpayer
participation, a more transparent and shorter
process with more conclusive outcomes, and
kind of focused on risks and priorities, rather
than small issues. And that sort of leads
then into, well, is there any way of avoiding
disputes or minimizing disputes? We talked a little bit
about advanced rulings and opinions, so I won’t
say more than that. More and more, countries
are offering advance pricing arrangements
and more companies are availing of them. Ireland launched
its advance pricing arrangements last year,
or last summer I think it was. And there are also
initiatives being looked at around benchmark
APA agreements as well. And could one benchmark
agreement agreed between two competent authorities
be used for other countries that the
taxpayer operates in? Then there’s also the
potential of safe harbors to be used for sort of
cost-plus arrangements or support services. And provided those are
realistic safe harbors, they could be
useful as well. And cooperative compliance
frameworks, where you have that relationship normally
with larger taxpayers based on trust is
something for the future. So at that, I think I’ll
hand it over to Mary. PHILIP BAKER:
Great, thanks. (Applause.) MARY BENNETT:
Thank you, Cora. Well, I’m just going to
take a few minutes to finish off this first part
of our discussion having to do with the experience
with MAP and arbitration. And as Cora has indicated,
when we talk about MAP, Mutual Agreement
Procedures, we’re really talking about situations
where under a double taxation prevention
treaty, a taxpayer has reached the conclusion
that one or both governments are somehow
taxing “him or it” in a way that violates the
treaty, that typically causes double taxation. And what is the solution? Because of course, the
substantive provisions of the treaties determine to
find which country should be able to tax the income
in a particular case. If the taxpayer thinks
that one or the other, or both countries have
somehow deviated from the solution provided by the
treaty, his right at that point under the treaty, is
to present his case to the so-called competent
authority. Under the treaty, that’s
typically someone within the tax administration,
who has been designated the ability to
handle such cases. And the two competent
authorities of the two countries are then
authorized to consult together. And the language typically
in the treaties has been, “they shall endeavor
to resolve the case.” Like, they have to try. They have to try. They should try hard. They should try
in good faith. Does that happen? Well, actually
historically, and I think it’s still true, in a very
high percentage of the cases and traditionally,
it’s been over 90 percent of the cases that actually
get into MAP discussions, the issue is resolved. And it’s resolved with
full elimination of double taxation. So why are we worried? Why are we talking
about this? Why do we have all you
good people here listening to this? There’s a lot of concern
that that state of affairs is in the course
of changing. We heard from Cora that
the numbers of cases being brought to the competent
authorities every year, they’re going on a trend
line like this, and the number of resolutions is
going on a trend line more like that. And we’re seeing that, you
know, every three years or so, we can expect the
number of cases in the net inventories to double. And we are not seeing the
number of analysts in the countries double at that
rate to deal with these cases. We also have issues about
something of a decline in the cases that are
resolved, in their ability to completely resolve
the double taxation. We’re seeing more frequent
examples of situations, where at the end of the
discussions, the two countries say, “Well yes,
we see that there’s double taxation alleged
on $100 of income. We’ll remove 70, and
we’ll solve that part. And the other 30 will
get left with double taxation.” That’s a problem
for the taxpayer. We’re also seeing
situations where taxpayers want to get into MAP. And for one reason or
another, and we’ll talk about the reasons in
more detail as we go on, they’re not actually
allowed into MAP, or they’re effectively
prevented for one reason or another from
getting into MAP. And so, the statistics we
see of what’s happening with the actual MAP cases
do not fully reveal the scope of the difficulties
that are out there. We’re going to start to
hear about arbitration and this is a new phenomenon,
really, in the international tax world. Of course, it’s existed
for a long time in the trade and
investment world. But for sovereign
governments to decide, with respect to their
taxes, the life blood of their operations, that
they might give over the power to resolve a double
taxation case to an arbitration panel, that is
a relatively new concept. Now, we are seeing it
start to show up in tax treaties, and we’ll talk
a little bit about the history of that. And of course, we’ve
had the EU Arbitration Convention for a
couple of decades. The experience thus far is
that the number of cases that actually go into
arbitration is very small. In the United States,
it’s still single digits. I think it’s still very
low in the EU as well. Does that mean these
provisions are not working? No. What happens, what
certainly the experience has been when you have
a well-functioning arbitration option
available, mandatory arbitration, is that cases
never have to get that far. That that operates as, for
one reason or another, a great incentive
to solve the case. The competent authorities
find themselves more apt to reach an agreement,
than if they had a completely open-ended
period for themselves to keep trying. If they know that at a
certain point, they might have to kick it over to an
arbitration panel, somehow their differences get
minimized and the cases get solved much
more quickly. So that’s been a
successful – I mean, at least the early experience
is that it’s a very successful mechanism for
getting cases resolved. But there continue to be
issues, and arbitration is a very small percentage
of the landscape that is covered. In traditional MAP
arrangements, there continue to be issues
about barriers to access to MAP, and as I
mentioned, we’ll talk about those. Timeliness: how much time
does it take to get a case resolved? And you think if you
kick it to two competent authorities, and they
might meet – you know, well, the good
relationships would be probably two to
three times a year. The less frequent ones
are less frequent. And as the taxpayer, you
might end up, you know, with a tickler once
you filed your case. “Well, I’ll call them up
every six months and see how things are going, and
do they have a meeting planned?” And you do that several
years in a row, and you don’t know really how well
your case is progressing, or whether it’s ever
going to get resolved. If there’s no deadline,
there’s no deadline. And sometimes, these cases
can drag on for years. Transparency is an issue
that we’ll talk about. Not just transparency
about, how do I get into MAP? Well, whom do I contact
in the government? Who has the
responsibility for this? What information do I have
to give them, to make sure that it’s going to be
dealt with properly? Very practical issues,
down to, what’s happening with my case? What positions are the
two governments taking? Do they have
the facts right? Does everybody
understand everything? Is it going to
get resolved? You know, all those kinds
of issues, because the taxpayer is typically
not involved in the discussions. These are government to
government discussions. The governments tend to
come at this with very much the sense that, this
is not – the taxpayer is just a stakeholder
in the middle. The argument here is
about, as between the two governments, whose
money is this? Now of course, that’s not
– that can be true to a large extent, but it’s
hardly ever true in real life. Usually, the taxpayer
cares which government is going to get to collect
the tax at the end of the day. But procedurally, the
taxpayer is sitting outside the room, or you
know, is sitting at home wondering what’s going on. And then, this issue about
guarantee of an outcome. The “shall endeavor
to resolve the case” standard, that is the
typical mutual agreement standard, gets you
there a lot of the time. But you don’t have a
guarantee that it’s going to get you there. And when you combine that
with not knowing how long it’s going to take,
you have questions. I want to talk a little
bit – just before we move onto more general
principles of taxpayer rights, and into the more
specific issues about these cases – there have
definitely been efforts made by various bodies
to try to improve the situation of dispute
resolution in these cases. And one can go back to
the 1990s with the EU Convention on Arbitration
specifically for transfer pricing cases, and that
has produced a handful at least of arbitration
decisions. There are some flaws, I
think it’s fair to say, in that convention,
some shortcomings. That have made it less
effective as a means of making sure that all cases
get resolved within an appropriate timeframe. And I think that’s partly
why we’re seeing the EU come back to this area 25
years later, and see if they can improve that. In the meantime, there’s
been other activity. In my prior life, I spent
some time at the OECD. And just about ten years
ago, this month, we were finishing up a multi-year
project on dispute resolution, which
addressed a lot – studied a lot of the issues, and
came forward with really three different changes
that were intended to improve the situation. One was to introduce
into the OECD Model Tax Convention a mandatory
binding arbitration provision, which
effectively said that, if a case was in discussion
between the competent authorities for two years,
and had not reached a resolution, that the
taxpayer could insist that it go to an arbitration
panel for resolution. And it provided a lot of
guidance on how countries could structure those
arbitration proceedings, giving them a lot of
flexibility on how to do it. It was also worked on to
toughen up, if you will, the commentary under
Article 25 of the Model Tax Treaty, which is the
mutual agreement article, to try to clarify
countries’ obligations to let cases into MAP, and
to deal with them in a way that was supposed to
achieve resolution. So there were some changes
made to the commentary. But there was also a
recognition that there’s a lot about how cases
can get resolved in a productive and in a
successful way, that may not be absolutely mandated
by the terms of the tax treaty arbitration –
I mean sorry, mutual agreement article, but
are best practices. And so, the third piece
of what the OECD did ten years ago was to produce
something called the Manual on Effective Mutual
Agreement Procedures. Fondly known by those of
us that deal with these things more frequently
as the MEMAP. And the MEMAP laid out
about 25 or so best practices of what both
taxpayers and governments should do, to make
MAP more effective. And we will talk about a
number of those when we get into the section,
where we talk about specific aspects
of taxpayer rights. Because obviously,
things start out as best practices I think before
they evolve into rights. So that work was done. Unfortunately, that
didn’t solve everything. But meanwhile, we had some
work done also at the UN. And one of the things that
the UN did in its last update to its Model Tax
Convention was to put an option into the model
for countries to have a mandatory binding
arbitration provision in their treaties. I think it’s very fair
to say that among the community of nations, it’s
probably the OECD member, the more developed
countries that are more accepting of the concept
of having an arbitration provision at this point,
than the wider range of countries that make
up the UN membership. But still, it was a major
step forward, for the UN to put that option
into its model. They also produced their
own guide on mutual agreement procedures that
was very reflective of the same kinds of best
practices that the OECD had identified. So that got us up
through 2012 and 2013. And we had the
OECD’s Forum on Tax Administration, which is
a very interesting body of commissioners, of revenue
from certainly 40 plus countries. It might be quite a bit
more than that now, who gather together on a
regular basis to address issues of tax
administration. And they decided to form,
for the very first time, a forum on mutual agreement
procedures, to try to make sure that the competent
authorities of governments were all coming at this
exercise with the same mindset. The same idea that their
obligation here, as competent authorities,
was not to maximize the revenue of their
government, was not to make sure that they
were upholding revenue assessments brought by
their audit functions. But to make sure that the
double taxation risk that was presented by cases
brought to them was resolved, and resolved in
a timely way, and resolved in a principled way. And so, that set of
discussions got under way at the same time we had
the BEPS project get off the ground. And Action 14 of that
BEPS project was, I think, people pretty routinely
describe it as the only taxpayer favorable action
in the whole project, but one that was aimed
at improving dispute resolution that produced a
final report in October of 2015. Interesting here again,
you see the same sort of differences that one saw
back in 2007, where there were some recommendations
that came out in the form of so-called minimum
standards, where all the participating countries
agreed, yes, these are things we should do. We agree that we should
do, and we will do. But then, there were also
a series of best practice recommendations. We’re not saying we
have to do this, but we recognize that these are
good practices that you could aspire to. But we’re not
committing to do them. And then, there was a
subset of countries that were interested in
producing an arbitration provision. And of course, the
participation in the BEPS work at the OECD was much
broader than just the OECD membership. You had the G20 countries. You had a dozen plus other
countries early on, and now that has widened out
to more than 100 countries that really are
participating in these discussions, broadly
speaking on implementing the BEPS resolutions. And there’s a multilateral
instrument that has been published in November that
will implement a lot of the treaty recommendations
from the BEPS project. Of the 100 or so countries
that participated in working on that draft
multilateral instrument, there were 20-ish that
agreed to work on the arbitration provision that
will be a part of it as an optional piece. So, you can see that’s
still too small a minority of the community, but
there’s progress bit by bit. And then, we’ve heard
the reference to the EU’s recent proposal to try to
improve their arbitration convention, or their
arbitration mechanism to expand it well beyond
transfer pricing to all kinds of double taxation
risks and to improve the procedural aspects of it. So, there is progress
happening and I think we can start talking detail. PHILIP BAKER: Let’s go
then to the second topic, (Applause.) and start looking at this
from the point of view of rights of taxpayers. And if I may, I’ll ask
Katerina to take us into the discussion of fair
trial rights, as they may apply to MAP and
arbitrations. So Katerina, over to you. KATERINA PERROU: So
protection of taxpayer rights in
multi-jurisdictional disputes. Let’s start with
a simple picture. This is what happens in
domestic tax law disputes, where you have the
taxpayer and the tax authority being parties in
the procedure before the body, the dispute
resolution body. Nothing wrong with that. Nothing strange
with that so far. This is what happens when
you discuss tax treaty disputes before domestic
dispute resolution bodies. You have the taxpayer
again, the tax authority on the other side. They are both parties
to the disputes. They present their
dispute before the dispute resolution body. Again, nothing
strange with that. Now, what happens when we
have to discuss tax treaty disputes under the mutual
agreement procedure found in the tax treaties
themselves? We have again the taxpayer
and the tax authority and the disputes. But then, this is the tax
dispute resolution body composed of the
tax authorities. Taxpayer is no longer
in the picture. The only parties to the
dispute are only the tax authorities. And where is the
taxpayer in this scheme? And again, does
this seem right? Well yes, of course, sure. Lots of people
would say that. And so far, this has
been the main position. What’s wrong with that? Well, let’s take a closer
look, to see whether this is right or not. Before going there,
I’m reading the report prepared by Nina and her
team, in their function as a taxpayer’s
advocate in the U.S. And I see that “we should
be looking towards a taxpayer-centric
tax administration. That we should encourage
taxpayer trust and confidence. We should change the
culture from enforcement oriented to
service oriented. We should make the
taxpayer – we should get the taxpayer to feel that
he’s engaged in the tax system he’s a part of. And if the tax authority
does not show respect for the taxpayer rights, this
erodes trust and this reduces voluntary
compliance.” Now, what can we do then
in relation to the picture that we were
seeing before? We are looking towards an
international universal standard of fair trial
guarantees regarding dispute resolution. And what we find, more or
less is the same wording, alongside many instruments
that provide for the protection of
citizens’ rights. And we find the right to
a fair trial that reads along these lines. “In the determination
of his civil rights and obligations or of any
criminal charge against him, everyone is entitled
to a fair and public hearing” – and this
is where we have the procedure – “within a
reasonable time by an independent and impartial
tribunal established by law.” And here we have the
organization part of the dispute resolution body. Great, let’s say. Let’s see what is
it, a fair hearing? First of all, we have
access to the court. That’s the main subject. In order to guarantee a
fair hearing, you must have access to the court
that will grant you a fair hearing. A hearing in the presence
of the private party involved, freedom from
self-incrimination, equality of arms, the
right to adversarial proceedings, and a
reasoned judgment. All these aspects are part
of the right to a fair trial, fair hearing. Public hearing: publicity
of the proceedings, the presence of the press,
the requirement of oral proceedings, and that the
judgment is pronounced publicly. These are also some of
the aspects of the public hearing aspect. Within a reasonable time. Of course, that would
depend on the complexity of the case, but here,
we’re talking about effectiveness. That we want to have a
remedy that is effective. That means that it
leads to a final binding solution within a
reasonable time. And of course, the
organization of the dispute resolution
body, an independent and impartial tribunal
established by law, where independence is judged
with regard to the executive. Impartiality is the
absence of bias, and tribunal is anybody that
has judicial functions. Now, I would focus
on two aspects. So the right to access
to the court, which is fundamental and in which
limited exceptions are allowed. And the right to an
effective remedy, which is reaching within a
reasonable time, a final binding decision. One would argue, and this
is also the prevailing position still, since
taxpayers have always recourse to
domestic courts. So the first two pictures
that we saw, for their tax treaty dispute
resolutions, their right to a fair trial is
always guaranteed. Because they always have
a remedy at their disposal that satisfies fair
trial guarantees. No, I would say. Let me explain a
little bit of why not. In one sentence, we would
say, one is none, and two is too many. That means going to the
courts in one country does not guarantee an effective
resolution of your case. Whereas, going to the
courts in two countries, as in many cases in
international cross-border tax disputes would require
you to do, is too many because one, it does
not require an effective remedy. Either, it’s no guarantee
that the courts in the two states will reach
the same decision. And you have to also
deal with costs and the combined length of
the proceedings in two jurisdictions. So, I would say let’s be
cautious when saying that having access to the
domestic courts, who provide for fair trial
guarantees, would amount to provide for fair trial
guarantees in cross-border tax dispute resolution. So, what we can do? We can look at the
international level, and we can look at what
we have available. And now, we’re talking
about the mutual agreement procedure that we
find in tax treaties. Is it an effective remedy,
in the sense that we described earlier? Yes, we have
heard it before. Most, or rather 90 percent
of the cases can be solved. That’s great. But still, we’re
not quite there. Let’s see how this
remedy does, as far as effectiveness
is concerned. Do we have a
reasonable duration? Yes, in some cases. The OECD, MAP and
arbitration, the combined, therefore. And the UN, MAP and
arbitration, they do provide for a streamlined
process that arrives at the result within a
reasonable time, at the predictable time,
let’s say better. Do we have a
final decision? Again, you can
see yes and no. And we have a binding
effect, yes, if we arrive with an effect. There’s an asterisk
for the UN, MAP and arbitration, because there
is not in the hands of the taxpayer, to enforce
the arbitration phase. So therefore that part,
maybe we’re not in the same level of
effectiveness as in the other cases. Let’s see about access. What is access? So we can define access
as having control over the procedure. And we have access and
access is guaranteed only if someone is party to the
proceedings and he has the same control over the
proceedings as the other party. The limited participation
rights that are provided in the MAP and arbitration
do not create enforceable rights. So they are granted if and
when the tax authorities, the competent authorities
would agree to, in most cases. That is why we cannot say
that they do amount to access to the proceedings. So, let’s have a look also
at the independence before assessing access. And this relates, as
we said before, to the organization of the
dispute resolution body. And again, we have four
aspects of the independent tribunal. One is the way the
members are appointed. The second is the
duration of their term. The guarantees that they
enjoy against outside pressure. And in general, the
appearances of the body, appearances of
independence. Again, we can see how
various remedies that we have available measure
against independence. The yes or no in the
duration of term and guarantees against outside
pressure in the joint competent authorities’
committees is because in some cases, dependent of
the competent authority, they may enjoy a higher
level of independence or not, or their term is
defined in different ways. So in some cases, on a
case by case basis, they may be more look or enjoy
independence or not. And now, let’s move to
an overall assessment. So, we have MAP on the
one hand, combined MAP and arbitration on
the other hand. Effectiveness, yes/no. Independence yes/no. Access, no. And that is where the
problem lies, the last part. So we do have an
effective remedy. We do have a remedy that
satisfies independence of the organization of the
body that is entrusted with the dispute
resolution. But we don’t have
access to that. And now, this is where we
should perhaps focus our efforts. How to provide access
to that remedy? In order to assess
access, we could look on a comparative level, to what
happens in other areas of law. And I’m talking here about
the experience in the case of investment disputes,
where we have similar structure, where we have a
private party and a state being in front of a court
and arbitration panel. What is access then
in those cases? Nominate an equal number
of arbitrators, agree on the president or the
secretary of the tribunal, agree on the rules of
arbitration, or the procedure in general,
and the timetable. Be present, either in
person or through legal representatives. Being represented by
counsel, have free communication between the
members and the panel. File reports, memorials,
counter-memorials, and any other documentation that
is relevant to the case. Submit observations
and comments. Use of expert opinions
and witness reports. Have oral hearings. Examine the witnesses,
examine the experts. Interpreters may be
present to help with the witnesses. Access to all the records:
written transcripts of the oral proceedings,
translations, minutes of meetings, etc. And of
course, everyone bear its own legal costs and
expenses, and share the costs of the arbitration. That should give us a look
of what access would mean, in the case we decided to
grant access to the MAP and arbitration
under tax treaties. I think I should stop here
before going forward and give the floor
back to Cora. Thank you. (Applause.) CORA O’BRIEN: So, you’ve
heard quite an extensive discussion there, in
relation to the right to a fair trial and an
effective remedy. There are a number of
fundamental rights in the EU, and they’re probably
mirrored quite closely globally. I’m just going to hit very
quickly on some of the other ones. Article 40 of the Charter
talks about the right to good administration, and
to have – these are the words the Charter uses
– “to have your affairs handled impartially,
fairly, and within a reasonable time.” And rather than answer
that question, I suppose I would just put
it out to you. Do you think what you
have heard represents impartiality, fairness,
and a reasonable time scale? Those are some of the
challenges under good administration. We’ve talked about
the fair trial. Protection of personal
data is also very important. In speaking with some of
our members, who had seen some of the documentation
in relation to their MAP cases, there was data
in there which kind of described arrangements
that they wouldn’t have agreed with. It extended opinions about
the taxpayer, which they wouldn’t necessarily have
agreed with, and didn’t get to see or didn’t
get to comment on. And maybe opinions about
the business transactions as well. So there is data there. And you know, doesn’t the
taxpayer really have the right to see how they’re
being described and what’s being said about them? There are freedoms to
conduct a business, you know. And arguably, in extreme
examples, if you’re involved in a very large
dispute, it can actually hamper your ability to
conduct your business in that country. So could that impinge
on that freedom? And then, the principles
of legality and proportionality. And I suppose, it was
mentioned earlier this morning and it is
certainly very true. There isn’t a balance in a
relationship between a tax authority and a taxpayer,
and there never will be. And for this reason, we can in
some respects, we can have a great discussion about
taxpayers’ rights, and the importance of enhancing
taxpayers’ rights. But the reality on the
ground is that it’s really unlikely that a taxpayer,
unless they have a very extreme case, is going
to assert their taxpayer rights. Because you have to
remember that that taxpayer has got to
continue to have a relationship with the tax
authority, and they’re trying to balance what
they might feel is kind of unfair actions, or unfair
exclusion, or unfair comments said about them. But they’re not really –
or certainly, what I would be told is it would
only be a really extreme example, where you would
actually make a complaint about that, because you
have to deal with the tax authority. So, that’s kind of how
it plays out in the real world, and I think it’s
important to be conscious of that. [Pause] MARY BENNETT: I was just
going to say quickly about that, Cora. In some countries, like
the one I come through, the taxpayer can be a bit
between a rock and a hard place. Because if you are in
a situation, as a U.S. taxpayer, where you have
a foreign government that has asserted additional
tax against you, and you have an opportunity to
have that discussed in MAP and you don’t take that
opportunity, you may have the risk that you lose
your foreign tax credit for that taxes. So you may face double
taxation, and that has made U.S. taxpayers think harder
about going to MAP in many cases. I think we’re going to
transition here from some of these general
principles that we’ve been talking about:
transparency, getting a guaranteed outcome, and
timeliness, etc. And talk in a little bit more
specific aspects about, how does that play out in
particular aspects of MAP and arbitration? And let’s take it apart
a bit piece by piece. Let’s think about
access to MAP. And here – I mean,
I mentioned earlier something as simple as, do
you know whom to contact? Has the government
published any procedures about how you would
bring a MAP case to them? That is a movement
that has started. Some countries are way
ahead of others, but we’re starting to see more and
more countries do that. Very helpful for a
taxpayer that thinks they need to bring such a case. What about the types of
cases that can be brought? The treaties certainly
say that, you know, if you think that you’ve gotten
taxation that’s not in accordance with the
treaty, you can go to MAP. Well, not all the
governments feel that it’s that broad, and some
of them would like to restrict the
types of cases. And they might do it
either informally or more formally. Certainly in the area of
arbitration, where we’re seeing some of the
countries coming to the table to say, “Well, we
would be willing to do arbitration, but not just
for any kind of case. You know, we’re going to
define the types of cases that we think should get
that far and limit them.” So, that’s a
potential problem. A very significant issue
that has really increased in recent years, and we
actually expect it will continue to increase, is
government saying, “Yeah, well we’re ready to do MAP
in principle, but not if we think the taxpayer has
engaged in tax avoidance, God forbid.” And unilaterally say, “We
think the taxpayer has run afoul of our anti-abuse
rules that we have, either in the treaty or
domestically, and we’re not willing to talk about
the issue with the other country.” And if you can’t get both
countries to the table, you don’t have a MAP
discussion or a potential for resolution. And so, one of the issues
is to have it clear that a country can’t unilaterally
say, “We’re going to keep this out of MAP, because
we think the taxpayer is engaged in tax avoidance.” That should be a joint
discussion between the two countries. If they both
agree, then fine. But if the other country
thinks that the taxpayer was justified, etc., then
that’s a different issue. Forced settlements,
there shouldn’t be forced settlements. What do we mean by that? Well, one of the things
that we see in practice, in many countries, is at
the examination level, the examiner saying, “We’re
going to propose an adjustment against you. And that adjustment is
going to be $2 million, and provided you agree not
to take the case to MAP, and we can fully
settle it now. But if you think you
want to go to MAP, that adjustment is going
to be $10 million.” Or many multiples of that. And what does the
taxpayer do in that case? They can take the two
million and settle. You know, pay tax on the
two million in settlement. Or they can run the
lottery in MAP and on a $10 million adjustment. Is that a practical
barrier to access to MAP? You better believe it is. What about having to
waive domestic remedies? One of the issues is, as
Cora said, you always have the ability if a state is
assessing an adjustment against you, to take that
to your national court. And you might get that
resolved, and you might not. That’s not necessarily
going to guarantee you a total resolution of double
taxation as between the two countries. So taxpayers would like
to think about MAP. But if you don’t have a
guarantee of an outcome in MAP that is going to
resolve the double taxation, then you
probably want to fall back on your ability to
take the case to court. Some countries will say,
“Well, we’ll talk about your case in MAP, but only
if you agree up front that you are waiving your right
to go to court on this issue.” That’s not what’s supposed
to happen, but that’s an issue that is a problem. Other issues about what
the taxpayer community refers to as “pay-to-play
requirements.” Sometimes, a country will
make an adjustment and say, “Well okay, we agree
to talk about it in MAP, but you have to agree to
pay the tax that we’re assessing up front, or
50 percent of the tax up front.” Well, understand that the
taxpayer, who has already paid the tax to the other
country, so this is like double taxation at least
temporarily, if not longer, just in order to
get the case into MAP. That’s not a great thing,
and connect as a barrier in practice. Another issue that’s more
controversial perhaps is, what happens if you have
a case or an issue that a domestic court has
already ruled on? But it’s leaving you in a
situation where you’ve got double taxation. Can you bring that
case into MAP? And will your competent
authority be prepared to argue successfully for
your court’s decision with the other country, or
maybe vary from it in order to settle the case? So those are issues. Transparency, we’ve talked
about as something that would be good for
taxpayer rights. We talked about
clarifying the procedural requirements. And mentioned, you
know, it’d be nice to be informed, to be kept
informed about the status of your case. That can be a
challenging thing. What about the ability to
review the position papers that the two governments
are sending to each other? Does that happen? Probably not very much. Sometimes and for some
countries, but not as a routine thing. So you may not even know
what they’re arguing to each other, or whether
they have the facts right of your case. Do you get an ability to
submit a position paper of your own as a taxpayer? Usually not. That’s not something
that you see very often. So you are really standing
outside the process. Do you get to meet and
make a presentation of your case, face to
face, to the competent authorities? Or in arbitration to
the arbitration panel? Now, this MEMAP manual
that I mentioned to you earlier, recommended that
taxpayers get to make presentations in cases
that were highly factually complex. And a number of
governments have said, “Yeah, that can
be helpful.” But that’s just a sort
of best practice at this point. It’s certainly
not routine. And what about at the end,
the ability to be advised of the decision and the
rationale in writing? It might happen. It might not. I mean certainly, you get
advised of the decision. You may not get
that in writing. You may or may not get
an indication of what the rationale is. And so, there
are issues there. Getting an outcome based
on principles, we’ve talked about, you know,
how confident can you be that there’s no horse
trading going on? That your case is being
traded off as between the two countries, as a sop to
get another case solved. I think on the whole, that
does not really happen. That’s certainly what we
hear from the competent authorities. But there’s a lot of
perception that that could be a risk. What is a problem is,
can you get a principled solution? Are countries taking the
same position on issues, depending on which way
a payment is going? Do they feel the same way
about outgoing interest as incoming interest, or
inbound distributors versus outbound sellers? There certainly is
experience of countries switching their views,
depending on whether they’re going to get the
revenue or not from the characterization. Will you get a solution
that fully resolves the double taxation? We’ve talked about how
that may not happen in every case. What about parts of it
that aren’t actually the tax itself, but would be,
for example, interest on the tax? You may have a situation
where you’ve paid tax to one country. They go through –
you know, you get an assessment from
another country. You go through
mutual agreement. The agreement is that,
“Okay, that tax really should have gone to
country number two.” So country number two gets
to collect the tax at that point, and charge you
interest for all the years that this has been
kicking along. Now, you should get a
refund from country number one. And what would be nice
would be if you got interest on your refund,
and even nicer at the same rate that you’re paying
country number two. But those interest – and
those interest amounts can multiply to be greater
than the tax itself. But that’s not always
coordinated, and not all the countries are willing
to agree even to try to coordinate that in MAP. How is the MAP process,
how is the competent authority process staffed
and run in countries? Are there situations where
there are performance indicators for MAP
personnel that include revenue results
for that country? Not a good thing, if
you’re looking for principled outcome
from the staffers. And also, are there enough
of them and are they adequately trained? And do they know what
they’re supposed to be doing in terms of
resolving double tax cases? And then finally, this
issue about the right to actually get
to an outcome. Do you have a guarantee
that you’ll get to an outcome? And one of the issues
that’s actually been in discussion currently is
the question of, supposing they do reach an
agreement, will it get implemented? And what happens if you’ve
got to the situation where yeah, country number two
should get to collect the tax per the agreement. And so, country number
one should be giving the refund. “But oh, I’m sorry, the
deadline for getting refunds from country
number one has passed. Too bad.” You know, will the
treaties have language typically that overrule
that, and say that it should be implemented? But there’s been
discussion about that, most recently at the
OECD in the MLI context. And then of course,
arbitration is the thing that would give you a
guarantee to an outcome, but will there be
access to that? So those are some of the
issues in practice that affect these rights. PHILIP BAKER: Thanks
very much, Mary. At this point, I wanted
to go, if I may, to the audience. And ask whether you have
any comments, experience, questions about MAP
and about arbitration. Just to give you some
topics to think about. These were some of the
specific aspects that we highlighted in the
presentations: taxpayer participation, abandonment
of rights, issues like that. Just while you’re
gathering your thoughts, I’ll just mention. I was at a transfer
pricing conference last week. It was one of these
conferences where participants could vote. And we asked the audience,
could you please vote on how many of you have
been involved in a MAP procedure that was
resolved in less than two years, between two and
five years, or that took more than five years? 100 percent of those
who voted said their MAP procedures had taken
more than five years. None of them had been
resolved in less than five years. Back at home in my
chambers, I have a very sad, very thick file of
a competent authority procedure, which took I
think 17 years in total. At the end of which the
two authorities decided they were never
going to resolve it. [Laughter] Well, with those points in
mind, can I throw it open to the audience? Do we have experience,
comments, questions? Yes, do we have
a microphone? Mr. microphone. AUDIENCE MEMBER: Thank
you very much for a fascinating discussion. So my experience in this
dates back over 30 years when I was a
practicing lawyer. And I – PHILIP BAKER: You started
practicing very, very early. [Laughter] AUDIENCE MEMBER: And
distressingly, it doesn’t sound like things have
changed all that much. PHILIP BAKER: Yeah. AUDIENCE MEMBER: But my
question is really about, what about all those
taxpayers who are facing the very problems that
you’re describing, and who don’t have access to MAP,
that they’re not dealing with treaty countries,
and they don’t have the ability to have that? What are the
implications for that? I can imagine some of
them, but I’d be really interested in
your responses. PHILIP BAKER: Okay, I
think we’ll gather a couple of comments, and
then put them to the panel. Michael, over here. AUDIENCE MEMBER:
Yeah, just a comment. I would like to emphasize
that I find it very regrettable that under
the BEPS project, not more progress or no progress
at all, to be honest have been achieved. Because this kind of
minimum standard we have now, in the area of
MAP, is kind of a joke. Because in 99 percent of
all the treaties, we have MAP rules. And I think it’s
even a step back. Because before that, we
had arbitration or we still have arbitration
clause as part of the Model Convention. So it was already a kind
of minimum standard, if you call them the OECD
Model Convention as a minimum standard. And now, it’s even less
than a minimum standard after the BEPS project. So therefore, I think it’s
really a pity that this is now even a step
back in my view. PHILIP BAKER:
Lucah, with the mic. AUDIENCE MEMBER: Thank
you very much for the presentation and for
inviting reflections on these aspects. I have a couple of
comments actually. One is in the context
of independence and impartiality of the MAP. I wonder whether the
taxpayers should be allowed to know the
criteria that the arbitrators will use
before the procedure starts. In other words, I know
that there are some MAPS, which uses more like a
visible criteria or some more particular criteria,
which requires offers from each one of the
tax authorities. In the context of
independence or impartiality and
transparency, would you agree that the taxpayers
should be able to know the criteria of a MAP, before
the MAP is started or before everybody (unintelligible) position of the taxpayer. And I have a second comment, someone mentioned before the European initiative [unintelligible] was talking about the recent proposal about the taxaction. The proposal was put forward in october 2016 recent proposal. I wonder if you agree that proposal to serve to be a little amended because of the cases of double taxation, [unintelligible]. The proposal only includes business taxpayers not non business taxpayers would you agree the proposal should be amended to be extended to all taxpayers even non business taxpayers. Thank you very much. PHILIP BAKER: Okay. We’ll come to the European
proposal, if we have time in a moment. Can I put it to the panel,
those comments from Alice, from Michael, and from
Lucah, anyone want to pick them up? Mary. MARY BENNETT: I’ll say
a few words I guess. I mean, in terms of versus
30 years ago let’s say, I think there’s been
progress in a number of respects. One is just that the
network of tax treaties is much broader than it was. So the ability to get
potentially to MAP is very much increased from
years and years ago. You still have all the
practical issues that we talked about though. I do think that the focus
on improving MAP and the ongoing discussion about
arbitration is advancing the ball. It’s just much more slowly
than I think many of us would like. And Michael, I mean, I
agree with you that it was, I think in hard
terms, very disappointing what came out of BEPS and
there were aspects of it that I thought were really
a step backward from where certainly the OECD
itself was ten years ago. Now, whether that was a
factor of backsliding by OECD members, or the
discussion included so many more countries, it’s
hard to say at this point. And in terms of
impartiality of – I guess you could only mean
arbitration panel members – because the competent
authorities are – well maybe, I’m not sure. I mean, certainly the
competent authorities, they’re part of the
revenue authority of each country. In that sense, there’s
always an issue about independence and
impartiality. But that’s part of the
exercise is, to have them trained and staffed and
structured in such a way, that they actually can
operate independently. And that takes some effort
on the part of the tax authorities, to make sure
that’s how it happens. KATERINA PERROU: I’ll just
make a couple of brief points. On the very good point
you raise about smaller businesses: I suppose
coming from a country such as the one that I come,
where we’re very export focused, we have a lot
of relatively small businesses that are
dealing in a smallish way with export markets, just
because they have to. And so, there are lots
of cases of them just settling with foreign
tax authorities. They couldn’t dream of
going into this process. And they may not always
agree the technical position. But on a cost benefit
analysis, it’s just less costly and more
certain to just pay it. And that’s a real shame. So I completely agree. And on the point on BEPS. I was just looking, at the
coffee break actually this morning, on the OECD
website, they were talking about the peer
review process. And I was reading some
commentary from the U.S. about criticisms. Because if taxpayers want
to give input and feedback on the peer review process
for dispute resolution, they have to be named and
they can’t comment through the process anonymously. And it acknowledges on
the website that this complicates their
negotiations with revenue authorities. So, we see this all
the time at home. Taxpayers, they’re
reluctant to kind of be named and give feedback,
because they’re afraid of the repercussions. And some other way does
need to be found of getting decent feedback
without compromising taxpayer confidentiality. PHILIP BAKER: Okay, I
think we’ll just take one more question. AUDIENCE MEMBER: Well,
it’s more excitement than a question, because you
mentioned quite often that you wish – well, first of
all, that just are landing on our desk. And indeed, we’re not
addressing all of your points. And especially, the
fact that you have the applicant himself
disappearing during the procedure. And the lack of checking
facts and things, which most of the time are of
utmost importance to run the arbitration. But I do want to give
credit to the Commission’s proposal, which address
some of the points you mentioned. But in particular, as to
the endeavor, we have an obligation of going
through and concluding and settling the deal for
the double taxation. This is not something
that we are dreaming of. We are doing that. The second thing is that
you have recourse at a certain point, when
you see that things are getting muddy, you have
the possibility to ask a court to settle the
thing in due course. This also is a guarantee
that you’re going somewhere with
your procedure. The third thing is that
we worked on a timeline. And as you reasonably
assume, this is of essence. And the essence is that
within 15 months, the procedure shall
be completed. And that’s also an attempt
for settling and making this far more attractive
for companies, for businesses. We also worked on the
scope, precisely to extend the scope and to end
up with this limited description of the scope,
of this directive and the different practice in
different member states also. And finally, we will have
an obligation to have a notification of the
taxpayers and to be published. So publicity is also
a last point in our proposal. Nobody knows what it will
become in the washing machine of Council
and Parliament. That’s people knowing
Brussel know what it can be. But at least, we
definitely try to keep up with those issues
you mentioned. Thank you for your time. PHILIP BAKER: Lovely. That was a wonderful
lead-in to the very last topic. Because I promised you
that at the end of the session, we would come to
the future and the MLI and the EU draft directive. Can I ask Mary, first of
all, to come up and talk about the MLI provisions
very briefly, and then Cora to follow? MARY BENNETT: Yeah, sure. So out of the MLI, there
were some parts of it that addressed the basic MAP
rules under Article 25. One of them was this
question of whether a taxpayer could bring his
case to one – only the country where he lived, or
could he also bring it to the other country. And the idea was to let
him bring it to the other country as well, in order
to stop this practice of having one country say,
“Well, I’m not going to even listen to you,
because I think you’ve done something abusive.” That was put in as a
recommendation, but with wiggle room for countries
to get out of it. So it was not the best
minimum standard kind of result, I would say. Also, they provided that
make it very clear that taxpayers have three
years from the date of notification, that they’ve
got inappropriate taxation to bring a case. And then this issue
of making sure that an agreement reached
would be implemented, notwithstanding the time
limits for refunds in the other country. That’s something that’s
been in the OECD model all along. That was continued, but
according to Michael’s theme here, they have
added some wiggle room there, too, to give
countries an option not to include that very hopeful
language, provided that they can agree with the
other country to reach some limits on how long a
country has to bring a new adjustment in
the first place. So, I would say mixed
results on those. There is an arbitration
provision that is an option under the
multilateral convention, multilateral instrument. It’s like the OECD
existing model, in that taxpayer can initiate
arbitration if MAP is not solved within two years. Unlike the existing
model, the MLI would give countries picking this
up, the right to limit the scope of the cases. That they would allow
to be eligible for arbitration, provided they
can get the other country to agree. Like the existing
arbitration, there’s no direct participation
of the taxpayer in the proceeding, either in
appointing the arbitration panel, or in being
involved in the cases. The default format is
what the OECD calls “final offer” arbitration, the
Americans call “baseball” arbitration, because it’s
a way that things work in professional
baseball in the U.S. But each side gives a
figure to the Board, and the Board picks one or the
other figure, doesn’t have to give a
rationale at all. This is what the U.S. does. It has been
extraordinarily successful in getting to quick
resolution, and in driving the competent authorities
much closer together, before you get to the
stage of arbitration. The other option, which
is the more preferred in Europe is the independent
opinion, where the arbitration board gets
position papers from both sides and can come up
with its own resolution. That is available as well. And the taxpayers
are required to keep information about the
arbitration confidential, interestingly enough. Thanks. CORA O’BRIEN:
Almost there. Finally, the EU
Arbitration Convention, a very good synopsis of it. All I will say in the last
minute or two is, we’ve had an EU Arbitration
Convention for some years, and we’ve had binding
arbitration in it. And there are some changes
proposed, some very welcome changes. For anyone not familiar
with the Convention, there’s basically
three stages in it. There’s the double
taxation arising, and there are kind of strict
time limits around when the taxpayer has to go to
the competent authority. And then how long the
competent authority has to make a decision, whether
it’s going to admit the case into MAP. If now under the new
proposal, if the competent authority says no, it’s
not going to MAP, there is a new appeal route to the
National Court, which is a welcome – that is a very
welcomed development. The only caveat that I
would say is, that’s quite a hard issue for a
National Court to decide and overturn, if you
like, the decision of a competent authority. But notwithstanding
that it is an important development. There’s this sort of
much stricter timeline. You have two years for
concluding the successful MAP, with the possibility
of a six month extension. And then if it’s
not concluded, it automatically goes
into arbitration. And again, there’s
improvements there. If the competent
authorities haven’t set up the arbitration panel
within 50 days, then the taxpayer can again go
to the court and get an arbitration panel set up. And then, there’s
timelines around getting a final decision. That final stage three
arbitration is now limited to 15 months. So we have a fixed
timeframe and that’s very welcome. And finally, and
this comes from the Commission’s own document. So, I suppose the
shortcomings in the dispute process: a
prolonged process is well dealt with in this
proposal, because there’s tighter timelines. Denial of access is dealt
with, because you have the option to go to the court. And the scope has been
extended beyond transfer pricing and PE. And I suppose the
fundamental issue is still there. Why can’t the
taxpayer participate? And is the taxpayer going
to get a better outcome, if they have a better
right of participation? And that’s where
I’ll finish. PHILIP BAKER: Great. And the last word, by all
means, the last word goes to Katerina for an
assessment and evaluation. KATERINA PERROU:
Okay, simple table. I was quite happy with
the proposal, I can say, because it is a major
improvement compared to what we have so far. So I’m just going to go
through independence, yes. Enough guarantees,
impartiality as well. Reasonable duration,
yes, with an asterisk. Because from my
perspective, where in a domestic court will
intervene, maybe we will have to prolong duration. So this may affect
the timelines. Final decision,
yes, we have. Binding effect, yes. Oral hearing, presence in
the proceeding, right to be represented
by counsel, yes. Equality of arms,
adversarial proceedings and reasoned judgment,
this will depend on the rules of functioning. So this is a crucial
document that will be drafted, the rules of
functioning of the body, the dispute
resolution body. They will have to decide
a number of issues. Access, in the sense
of control over the proceedings by the
taxpayers, I would say yes. We have enough
improvement, compared to what we were. Of course, there’s
always room for more. But let’s say, for this
point, I think I’m quite happy. Thanks. [Applause] PHILIP BAKER: What a
super panel to work with. Thank you very,
very much indeed. Will you all join me in
thanking Mary, Cora, and Katerina? [Applause]

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