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Resolving treaty disputes: The Mutual Agreement Procedure

1.0 Introduction

1.1 A double taxation agreement (DTA) is an official agreement between two jurisdictions on how to treat a taxpayer when the tax laws of both jurisdictions apply to the same issue or taxpayer.

1.2 A common situation is where a taxpayer resident in one jurisdiction, for example, Jersey, receives income from another jurisdiction, such as pension income. Without a DTA, both jurisdictions may wish to tax this income with the result the taxpayer pays tax twice.

1.3 Jersey has two types of agreement which deal with double taxation:

1.4 If a taxpayer feels that they have been treated in a way which is not in line with the relevant DTA, they can ask a jurisdiction to intervene. Most of our DTAs include the option for taxpayers to raise these issues, and to ask one or more of the jurisdictions involved to try to resolve them on the taxpayer’s behalf. This dispute resolution process is known as the Mutual Agreement Procedure (MAP).

1.5 Some examples of when MAP may be appropriate are as follows:

  • A taxpayer is considered to be a resident of two jurisdictions under each jurisdiction’s domestic law, and each jurisdiction asserts the taxpayer is a resident of its jurisdiction for purposes of the relevant DTA. The mutual agreement procedure would determine the proper application of the residence article of the relevant DTA
  • Withholding tax is levied beyond what is considered to be allowed by the relevant DTA on a payment to a resident of the other jurisdiction. The mutual agreement procedure would seek to determine what rate of withholding tax is appropriate in the circumstances
  • A taxpayer is subject to additional tax in one tax jurisdiction because of a tax audit assessment. The mutual agreement procedure would consider whether the audit assessment should be reduced or withdrawn or whether a compensating adjustment (a reduction in profits/increase in losses) be allowed to the other taxpayer by the tax administration where the profits were originally recognised
  • A permanent establishment is recognised by one tax jurisdiction and profits are attributed to it. The mutual agreement procedure would determine whether a permanent establishment arises in the circumstances and/or what profits should be recognised
  • A taxpayer is uncertain whether the DTA covers a specific item of income or how specific cross-border income should be classified. The mutual agreement procedure would determine how the income should be characterised or classified in accordance with the relevant DTA
  • A taxpayer considers the application of a domestic law anti-abuse provision is in conflict with the provisions of the relevant DTA. The mutual agreement procedure will determine what is appropriate in the circumstances

The above is not intended to be an exhaustive list of all circumstances where the MAP process may apply.

1.6 All of Jersey’s full DTAs and many of Jersey’s mini DTAs contain articles which allow taxpayers to initiate MAP discussions in order for double taxation matters to be considered.

1.7 Jersey has no bilateral programme for concluding advance pricing agreements - in other words, there is no system for Jersey, a taxpayer and the tax authority of a third jurisdiction to agree the pricing to be applied by the taxpayer to transactions which affect the taxpayer’s position in both jurisdictions. As a consequence, MAP requests cannot be settled during the course of these negotiations.

2.0 Initiating a MAP request

Who can make a MAP request

2.1 MAP may be requested by anyone who considers they have not been, or may not be treated in line with a DTA, whether they are an individual, business, company or any other type of taxpayer. However, the MAP process may only be commenced by the person affected by the treatment or their authorised agent.

2.2 We do not charge a fee for dealing with MAP requests.

Circumstances where a request will be accepted by Jersey

2.3 A MAP request may be made where the actions of one or both tax administrations result or are likely to result in taxation not in accordance with the relevant DTA. It is unnecessary for the position to be final before a MAP request is made, just that it is probable taxation not in accordance with the DTA is likely to arise.

2.4 The relevant DTA will say to which jurisdiction the request should be made. Some DTAs allow a request to be sent to either jurisdiction affected by the request.

2.5 We do not prevent access to MAP where double taxation has arisen as a consequence of a tax audit (or enquiry) settlement between you and Revenue Jersey or the tax authority of the other jurisdiction. Initiating a MAP request may be the only way for you to get relief for the additional profits that have been assessed.

2.6 You may also initiate a request where there is a dispute over the application of the relevant DTA, but where no double taxation arises, for example, where income or profits is taxable in one tax jurisdiction, but would not be taxable in Jersey because of losses (say).

2.7 The submission of a MAP request does not stop you from pursuing domestic remedies and appeals. Where, however, you submit a MAP request, but you are pursuing domestic tax remedies in either Jersey or the other jurisdiction, the MAP process will only be regarded as starting when domestic remedies are abandoned, suspended or concluded.

2.8 You may wish to submit a protective request whilst you are pursuing domestic remedies in order to protect yourself from the time limits for making a MAP request (see below for details of these limits).

2.9 If you are pursuing legal remedies and appeals in Jersey, and your case has been considered by the Jersey Commissioners of Appeal or Royal Court in Jersey, then in the absence of new facts, the Jersey competent authority will be unable to deviate from those decisions.

2.10 Ordinarily, either Revenue Jersey or the other tax administration will have initiated proceedings that led to taxation not in accordance with the relevant tax treaty. A MAP request may also be submitted where you rather than a tax administration initiated an adjustment that gave rise to double taxation. This could be where you or a related party made a transfer pricing adjustment to increase profits. A MAP request would then need to be made to recognise a downward adjustment to the profits of the business at the other end of the transaction.

2.11 Where we receive a MAP request relating to an issue that is in respect of a number of years, we shall adopt a co-ordinated approach to all of the requests.

Multi-lateral Cases

2.12 You may submit a MAP request that involves more than one tax jurisdiction. Provided the necessary bilateral agreements exist, we will co-ordinate our work with other tax jurisdictions to relieve taxation not in accordance with the relevant DTAs.

Time Limits

2.13 The time limit for making a MAP request will depend on the specific DTA which should be checked, though our full DTAs typically require a MAP request is initiated within 3 years of first notification of the action resulting in taxation not in accordance with the provisions of the tax treaty.  For example, where double taxation arises because of a tax audit, the time limit is likely to run from the date of the final assessment.

2.14 Where a full or mini DTA requires the MAP request be initiated in a shorter period than 3 years, for example, the DTA with Qatar provides for a 2 year time limit for submitting the MAP request, Jersey will allow the period for submitting a request to be extended to 3 years.  However, it is only possible to offer this concession where Jersey is in a position to give relief if the MAP request is successful and bilateral negotiations are unnecessary. In other cases, the agreement of the other jurisdiction to a 3 year notification period will be required before MAP discussions can be commenced.

2.15 We shall not deny access to the MAP process simply because you have already agreed the tax treatment with Jersey or the other tax jurisdiction.

Form and Content of Request

2.16 There is no standard form for making a MAP request, because the form and content will depend on specific facts and circumstances. Your request must include a full explanation of the issue giving rise to what you regard as taxation not in accordance with the DTA together with copies of all supporting documentation and the following information and documentation:

2.16.1 Identity of the taxpayer(s) covered in the MAP request – the identity of the taxpayer(s) covered in a MAP request must be sufficiently specific to allow us to identify and contact all taxpayer(s) involved. The information provided should include the name, address, taxpayer identification number or birth date, contact details and the relationship between the taxpayers covered in the MAP request (where applicable);

2.16.2 Basis for the request – the MAP request should state the specific double tax agreement including the provision(s) of the specific article(s) which you consider is not being correctly applied by either one or both jurisdictions (and to indicate which jurisdiction and the contact details of the relevant person(s) in that jurisdiction);

2.16.3 Facts of the case – the MAP request should contain all the relevant facts of the case including any documentation to support these facts, the taxation years or period involved and the amounts involved (in both sterling and any foreign currency);

2.16.4 Analysis of the issue(s) requested to be resolved – you should provide an analysis of the issue(s) involved, including your interpretation of the application of the specific agreement provision(s), to support your basis for making a claim that the provision of the specific tax agreement is not correctly applied by either one or both jurisdictions.
You should support your analysis with relevant documentation, for example, documentation required under transfer pricing legislative or published guidance, copies of tax assessments issued by the tax authority leading to the incorrect application of the treaty provision.

2.16.5 If the MAP request was also submitted to the other tax jurisdiction, the MAP request should make this clear, and provide the date of submission, the name and the designation of the person or office to which the MAP request was submitted. A copy of the submission (including all documentations filed with that submission) should also be provided unless the content of both MAP submissions are exactly the same in which case this should be stated;

2.16.6 If the MAP request was submitted to another authority under another instrument that provides for a mechanism to resolve treaty-related disputes, the MAP request should clearly state what has happened and the date of submission, and the name and designation of the person or the office to which the MAP request was submitted. A copy of the submission (including all documentations filed with that submission) should also be provided unless the content of both MAP submissions are exactly the same;

2.16.7 If appropriate, how the issue(s) involved were previously dealt with for tax purposes, for example, in an advance ruling, advance pricing arrangement, settlement agreement or by any tax tribunal or court. A copy of the ruling(s), agreement(s) or decision(s) should be provided;

2.16.8 A statement confirming that all information and documentation provided in the MAP request is accurate and that you will assist us in our resolution of the issue(s) presented in the MAP request by furnishing any other information or documentation required by us in a timely manner. Your response to a request for further information should be complete and be submitted within the time stipulated in the request for such information or documentation.

2.16.9 You must state if your request is a protective one, that is, you are submitting it in order to ensure it is made within the necessary time limits, and either you have told us that you do not want it to be considered until you tell us to, or Revenue Jersey and the other tax administration have both agreed to this (for example, if you are also taking an appeal through the Commissioners or the courts).

2.16.10 Any other information or documentation which you think is relevant to the case.

2.17 It may be you do not have all of the information required to apply for MAP, perhaps because the transaction giving rise to taxation not in accordance with the treaty is still under enquiry. In these circumstances, you may wish to submit a protective MAP request rather than run the risk of your request being out of time. A protective MAP request should still include sufficient information, for example, details of the year(s) affected, a description of the action giving rise to the double taxation and the full names and addresses of all parties affected by the double taxation.

2.18 MAP requests should be made in writing, in English (or provided with a certified translation) and may be by letter or email. MAP requests should be submitted to Niamh Moylan (Director – International Tax), Revenue Jersey at 19-21 Broad Street, PO Box 56, St Helier, Jersey JE2 3RR n.moylan2@gov.je

2.19 MAP requests received are reviewed by experienced staff working for the International Tax Unit, part of Revenue Jersey. These staff do not perform tax audit or enquiry work for Revenue Jersey and are therefore independent of this compliance work.

2.20 Some of Jersey’s DTAs allow you to present your case to either Revenue Jersey or the other jurisdiction. In other cases, the specific DTA will say to which tax jurisdiction the request should be submitted. If you choose to submit your request to both Revenue Jersey and the other jurisdiction involved, you must submit both requests at the same time.

2.21 Information exchanged under our DTAs is confidential and may only be used and disclosed in accordance with the provisions of the treaty.

3.0 Resolving the request

3.1 Ordinarily, we will acknowledge your MAP request as soon as it arrives. This will be by email unless you request this be done by letter.

3.2 We try to complete our review of a MAP request within two months of receiving it. We may ask for further information or documentation. The information you provide is crucial to the MAP process, and we expect you to deal with requests for additional information in as short a time as possible.

3.3 Where your MAP request involves an amount of unpaid Jersey tax, the collection of this debt will be suspended until your MAP request has been reviewed and concluded.

3.4 If we do not think the request is admissible or justified, we will explain why we believe this is so and give you the opportunity to clarify any misunderstandings. Whatever the outcome of this review, we shall implement a bilateral consultation process in order to allow the other jurisdiction to provide its views.

3.5 If your MAP request is not a matter Revenue Jersey authority can agree by itself, and this is often referred to as the provision of unilateral relief, we will discuss your case with the other tax jurisdiction and try to resolve it in accordance with the relevant DTA.

3.6 You or your tax agent will not be a party to the consultations between the competent authorities once a MAP request has been initiated. You may, however, be invited to participate informally at the discretion of both competent authorities.

3.7 Where the matter is discussed with the other tax authority, agreement is reached on the matter and the initial MAP request was submitted to Revenue Jersey, we shall contact you to seek your agreement on what is proposed. Once this is received from you, each tax administration will take the necessary steps to give effect to the agreement. Revenue Jersey will give effect to any adjustment to tax paid and penalties notwithstanding any time limits permitted by Jersey tax law.  Once implemented, the matter will be considered closed.

3.8 If you do not agree to what is proposed to resolve your request, you will be given an opportunity to explain why you consider the proposals are inappropriate. If after further bilateral discussions, the negotiating competent authorities conclude the original proposals remain the most appropriate in the circumstances, the affected tax jurisdictions will conclude their efforts are exhausted and you will have to choose between either accepting the proposed terms and pursuing suspended domestic remedies.

 3.9 We endeavour to conclude all MAP requests as quickly as possible and within an average timeframe of two years from the date MAP proceedings are regarded as commencing. This is generally the date the complete request with all required information was submitted unless the request was submitted as a protective claim. Many requests may be resolved in a significantly shorter period, though the length of time will depend on the complexity of the matter and the assistance given in reaching a resolution by the competent authority of the other jurisdiction.

3.10 Exceptionally, the competent authorities cannot reach agreement.  If at the end of two years the matter has not been resolved, you may request the matter be resolved by arbitration if the relevant DTA allows it.

Further information on the mutual agreement procedure can be found in the commentary on Article 25, Model Tax Convention on Income and on Capital, published by the OECD.

For further information, contact either: Niamh Moylan (International Tax) n.moylan2@gov.je +44 (0) 1534 440415 or Graeme Grozier (International Tax) g.grozier@gov.je +44 (0) 1534 440609.

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