In October 2015, the Organization for Economic Cooperation and Development (OECD) finalized its report titled Action 14: Making Dispute Resolution Mechanisms More Effective. As part of Action 14, the members of the Inclusive Framework on BEPS (IF)4 committed to implement a minimum standard to ensure that treaty-related disputes were resolved in a timely, effective, and efficient manner. Mutual Agreement Procedures (MAP) offer an important process for purposes of resolving double tax disputes arising from international tax matters – many of which will relate to transfer pricing. Through MAPs, the relevant taxing authorities (operating under the provisions of tax treaties between the countries involved) are supposed to arrive at a joint agreement regarding the allocation of profits between tax jurisdictions.
Now in its second full year of implementation, the OECD released updated MAP statistics for 2018 on September 16, 2019. Consistent with its 2017 statistics reporting, the updated 2018 MAP Statistics Reporting Framework makes a distinction between the cases received before Action 14 (i.e., before January 1, 2016 or January 1 of the year of joining the BEPS inclusive framework) and after Action 14 implementation (i.e., cases received on or after January 1, 2016 or January 1 of the year of joining the BEPS inclusive framework).
The key takeaways from the 2018 MAP Statistics include the following:
- Higher volume of MAP cases initiated since 2017. According to the MAP statistics reported by 89 countries in 2018, the total number of cases started on or after January 1, 2018 was 2,385, an approximately 15 percent increase in number of cases started in 2017. The jurisdictions with the highest number of new cases initiated in 2018 include Germany (615 cases), Belgium (581 cases), and France (449 cases). The United States reported a high number of new cases related to transfer pricing (157 cases), posting the fourth largest number of new cases initiated in transfer pricing for 2018, behind France (222 cases), Italy (196 cases), and Germany (178 cases).
- Decrease in number of MAP cases completed in 2018. For the time period January 1, 2018 through December 31, 2018, the members of the IF reported 2,704 cases as completed. This is a 1.5 percent decrease in number of cases completed over the same timeframe in 2017. However, the OECD report also indicates that of the 2,704 cases closed in 2018, approximately 80 percent were successfully resolved. For 2018, Germany had the highest number of total cases closed (658 cases), followed by Belgium (635 cases), and the Netherlands (373 cases). The United States had the second highest number of closed cases for MAPs concerning transfer pricing disputes (181 cases), behind Germany (227 cases).
- Average duration to MAP resolution remains above Action 14 Target. While the OECD under Action 14 encourages jurisdictions to resolve MAP cases within 24 months of notification, the statistics show an average of 33 months to resolution for transfer pricing related disputes, an increase in the average time to resolve a case from 2017. This is likely due to the increasing digitalization (and associated emergence of new business models and taxation) of the economy, as well as the increase in number of cases open at the beginning of each year. However, it is important to note that the duration to resolution varies greatly by case complexity and jurisdiction involved.
- Transfer pricing continues to be the biggest driver of new MAP cases. Since the MAP statistics were published for 2017, the number of MAP cases involving transfer pricing issues increased approximately 20 percent year-over-year, while cases in other tax areas increased by roughly 10 percent during the same period. In addition, transfer pricing cases accounted for more than 51 percent of total cases in inventory at the end of 2018.
Additional information concerning the Mutual Agreement Procedure Statistics for 2018, as well as comparisons of MAP statistics between jurisdictions, can be found on the OECD’s website here.5
4Members of the inclusive framework as of January 1, 2019 are listed here.
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