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  • Arbitration

    Independent and binding arbitration, for issues that remain unresolved under the Mutual Agreement Procedure (MAP), is provided for in some of Australia’s tax treaties. This is because the relevant tax treaty either:

    You may request (in writing) arbitration if an issue of your MAP case remains unresolved by the competent authorities (CAs) within the time period specified in the relevant tax treaty (generally two years).

    The MLI and arbitration

    Australia has adopted mandatory binding arbitration under Part VI of the MLI subject to all the following conditions:

    • disputes which have been the subject of a decision by a court or administrative tribunal will not be eligible for arbitration, or will cause an existing arbitration to terminate
    • breaches of confidentiality by taxpayers or their advisors will terminate the arbitration process
    • disputes involving the application of either Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936)or section 67 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) will be excluded from the scope of arbitration
    • any treaty partners’ specific reservations made under Article 28(2)(a) of the MLI on the scope of issues eligible for arbitration.

    The extent of availability of arbitration in Australia’s tax treaties modified by the MLI will depend on the finalised Part VI adoption positions taken by Australia and its treaty partner. Based on other jurisdictions’ known adoption positions, it is expected that 16 of Australia’s tax treaties will eventually be modified by the MLI to provide for mandatory binding arbitration.

    Australia’s current tax treaties with Germany and Switzerland already provide for arbitration and will not be modified by the MLI.

    Arbitration in Australia’s tax treaties

    The table below lists the tax treaties which have, or are expected to have, arbitration provisions. Treaties for which the date of effect of the arbitration provisions are not yet known are those where the treaty partner has yet to action its ratification, acceptance or approval of the MLI and notify the OECD. You can click through to the bilateral Memorandum of Understanding (MOU) with each treaty partner in the table below, as they become available.

    Memorandum of Understanding with treaty partners

    Jurisdiction

    Eligibility period (years)

    Arbitration provision takes effect for MAP cases presented on or after

    Arbitration available for cases presented for MAP prior to arbitration provisions taking effect

    Belgium

    Two

    01/10/2019

    Yes

    Canada

    Two

    01/12/2019

    Yes

    Denmark

    Two

    01/01/2020

    Yes

    Fiji

    Two

    -

    -

    Finland

    Two

    01/06/2019

    Yes

    France

    Three

    01/01/2019

    No

    Germany (non-MLI)

    Two

    07/12/2016

    (Note 1)

    No

    Ireland

    Two

    01/05/2019

    No

    Italy

    Two

    -

    -

    Japan

    Two

    01/01/2019

    Yes

    Malta

    Two

    01/04/2019

    No

    Netherlands

    Two

    01/07/2019

    Yes

    New Zealand

    Two

    01/01/2019

    Yes

    Papua New Guinea

    Two

    -

    -

    Singapore

    Two

    01/04/2019

    No

    Spain

    Two

    -

    -

    Switzerland (non-MLI)

    Three

    14/10/2014

    (Note 2)

    No

    United Kingdom

    Two

    01/01/2019

    Yes

    Note 1: Arbitration may be available for unresolved issues in MAP cases concerning income derived on or after 1 July 2017 or in respect of withholding tax on income derived on or after 1 January 2017.

    Note 2: Arbitration may be available for unresolved issues in MAP cases concerning income derived on or after 1 July 2015 or in respect of withholding tax on income derived on or after 1 January 2015.

    Your MAP case’s eligibility for arbitration

    Your MAP case is eligible to be submitted for arbitration if it meets all the following criteria:

    • Your case was presented for MAP under the treaty equivalent of Article 25(1) of the OECD Model Tax Convention.
    • The arbitration provisions have effect on your MAP case (refer to relevant date in table above).
    • The CAs involved in your case have not reached an agreement on all the issues within two years (or three years under certain tax treaties).
    • The unresolved issues are not excluded from the scope of arbitration due to reservations made by Australia (or treaty partner) under the MLI, or exclusions specified in the tax treaty.

    MAP cases presented before arbitration provisions take effect

    MLI Arbitration

    Arbitration is potentially available to MAP cases presented prior to the arbitration provisions taking effect. This will depend on the reservations adopted by Australia's treaty partners. Jurisdictions can reserve the right for cases presented for MAP prior to the later entry into force dates to be eligible for arbitration only if the CA of both jurisdictions agree that the case can be submitted for arbitration. You will be notified of this decision if the CAs of Australia and the relevant treaty partner agreed for your MAP case to be submitted for arbitration.

    Additionally, under Article 28(2)(a) of the MLI, jurisdictions may limit the scope of MAP cases eligible for arbitration.

    Arbitration in other treaties

    Arbitration is not available to MAP cases with issues concerning years ordates prior to the entry into force date of the tax treaty with arbitration provisions.

    Memorandum of Understanding

    The CAs of Australia and the relevant treaty partner are required to bilaterally conclude a MOU on the mode of application of the arbitration process for the arbitration provisions in the tax treaty to operate.

    In general, the MOU will cover:

    • details regarding how a taxpayer makes a request for submission of a case to arbitration
    • the minimum information necessary for a case to be considered for arbitration
    • terms of reference
    • appointment of arbitrators
    • arbitration process
    • communication of information and confidentiality
    • operating procedures
    • costs, including fees paid to arbitrators and the chair
    • failure by the chair to communicate the decision, within the required period
    • final decision, including implementation
    • entry into effect of arbitration provisions, including for MAP cases entered into prior to entry into force of the MLI
    • types of MAP cases not eligible for arbitration.

    Arbitration process

    Part VI of the MLI contains the operative provisions of the arbitration process for tax treaties that are modified by the MLI to provide for arbitration. The process is dependent on the position and reservations of Australia and its treaty partner. The specific rules and timeframes agreed between the CAs are contained in the relevant MOU.

    For tax treaties that provide for arbitration and are not modified by the MLI, the arbitration process is contained in the MOU.

    Broadly, for MLI and non-MLI arbitration, jurisdictions can adopt one of two types of arbitration process:

    • final offer - an independent arbitration panel considers the proposed resolutions submitted by the CAs and chooses, by vote of simple majority, one of the proposed resolutions as the final arbitration decision.
    • independent opinion - an independent arbitration panel considers the position papers (including relevant information) submitted by the CAs, the applicable provisions of the relevant tax treaty and domestic provisions of both jurisdictions to reach the final arbitration decision.

    Australia has adopted the final offer arbitration process under the MLI. As such, the majority of tax treaties modified by the MLI to provide for arbitration will follow this process. An exception is where Australia’s treaty partner has adopted independent opinion (for example, Japan and Malta). In this case, independent opinion will be the relevant process for the arbitration proceedings with that treaty partner.

    When you can request arbitration

    You can request for any unresolved issues under your MAP case to be submitted to arbitration if the relevant tax treaty provides for arbitration and your case satisfies the eligibility criteria.

    How to request arbitration

    You must submit your request for arbitration in writing to either or both of the CAs.

    In your request for arbitration, you must provide sufficient information to identify your MAP case.

    Address to submit arbitration requests

    To submit a request for arbitration to the Australian CA, email it and any other correspondence relating to your MAP case to internationalgatekeeper@ato.gov.au

    Alternatively, our postal address for submitting an arbitration request is:

    APA/MAP Program Management Unit
    Public Groups and International
    Australian Taxation Office
    PO Box 9977 
    Brisbane QLD 4001
    Australia   

      Last modified: 23 Sep 2020QC 56904