Article 25 - Mutual Agreement Procedure - International Taxation - Income Tax

Article 25 - Mutual Agreement Procedure As per OECD Model Tax Convention Elimination of particular case of taxation Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of either Contracting State. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention. [ Para 1 of Article 25 ] The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States. [ Para 2 of Article 25 ] Competent authorities Resolve difficulties or doubts The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention. [ Para 3 of Article 25 ] How Competent authorities may consult together The competent authorities of the Contracting States may communicate with each other directly, including through a joint commission consisting of themselves or their representatives, for the purpose of reaching an agreement in the sense of the preceding paragraphs. [ Para 4 of Article 25 ] Competent Authorities unable to reach each other Where, a) under paragraph 1, a person has presented a case to the competent authority of a Contracting State on the basis that the actions of one or both of the Contracting States have resulted for that person in taxation not in accordance with the provisions of this Convention, and b) the competent authorities are unable to reach an agreement to resolve that case pursuant to paragraph 2 within two years from the date when all the information required by the competent authorities in order to address the case has been provided to both competent authorities, any unresolved issues arising from the case shall be submitted to arbitration if the person so requests in writing. These unresolved issues shall not, however, be submitted to arbitration if a decision on these issues has already been rendered by a court or administrative tribunal of either State. Unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision, that decision shall be binding on both Contracting States and shall be implemented notwithstanding any time limits in the domestic laws of these States. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this paragraph. As per UN Model Tax Convention In the UN Model Tax convention Two alternative versions are given for Article 25 of the United Nations Model Tax Convention. Article 25 (Alternative A) Alternative A reproduces Article 25 of the OECD Model Tax Convention with the addition of a second sentence in paragraph 4 but excludes arbitration as is provided for in paragraph 5 of the OECD Model Tax Convention. How Competent authorities may consult together The competent authorities of the Contracting States may communicate with each other directly, including through a joint commission consisting of themselves or their representatives, for the purpose of reaching an agreement in the sense of the preceding paragraphs. The competent authorities, through consultations, may develop appropriate bilateral procedures, conditions, methods and techniques for the implementation of the mutual agreement procedure provided for in this Article. [ Para 4 of Article 25 ] Article 25 (Alternative B) Alternative B reproduces Article 25 of the OECD Model Tax Convention with the addition of a second sentence in paragraph 4 and includes mandatory arbitration as is provided for in paragraph 5 of the OECD Model Tax Convention. The competent authorities of the Contracting States may communicate with each other directly, including through a joint commission consisting of themselves or their representatives, for the purpose of reaching an agreement in the sense of the preceding paragraphs. The competent authorities, through consultations, may develop appropriate bilateral procedures, conditions, methods and techniques for the implementation of the mutual agreement procedure provided for in this Article. [ Para 4 of Article 25 ] Competent Authorities unable to reach each other Where, (a) under paragraph 1, a person has presented a case to the competent authority of a Contracting State on the basis that the actions of one or both of the Contracting States have resulted for that person in taxation not in accordance with the provisions of this Convention, and (b) the competent authorities are unable to reach an agreement to resolve that case pursuant to paragraph 2 within three years from the presentation of the case to the competent authority of the other Contracting State, any unresolved issues arising from the case shall be submitted to arbitration if either competent authority so requests. The person who has presented the case shall be notified of the request. These unresolved issues shall not, however, be submitted to arbitration if a decision on these issues has already been rendered by a court or administrative tribunal of either State. The arbitration decision shall be binding on both States and shall be implemented notwithstanding any time limits in the domestic laws of these States unless both competent authorities agree on a different solution within six months after the decision has been communicated to them or unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this paragraph. Analysis of Paragraph 5 of Article 25 (Alternative B) The para paragraph includes mandatory arbitration as is provided for in paragraph 5 of the OECD Model Tax Convention but but with four differences. First, paragraph 5 provides that arbitration may be initiated if the competent authorities are unable to reach an agreement on a case within three years from the presentation of that case rather than within two years as provided in the OECD Model Tax Convention. Second, while the OECD Model Tax Convention provides that arbitration must be requested by the person who initiated the case, paragraph 5 provides that arbitration must be requested by the competent authority of one of the Contracting States (this means that a case shall not be submitted to arbitration if the competent authorities of both Contracting States consider that such a case is not suitable for arbitration and neither of them makes a request). Third, paragraph 5, unlike the corresponding provision of the OECD Model Tax Convention, allows the competent authorities to depart from the arbitration decision if they agree to do so within six months after the decision has been communicated to them. Fourth, while the OECD Model Tax Convention provides that the two-year period begins when all the information required by the competent authorities in order to address the mutual agreement procedure case has been provided, paragraph 5 provides that the three-year period begins with the presentation of the mutual agreement procedure case to the competent authority of the State that did not initially receive the case.