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  • Mutual agreement procedure

    Within the international tax system, the mutual agreement procedure (MAP) – in Australia’s tax treaties – supports a resilient global economy and facilitates economic growth. MAP can help:

    • relieve double taxation
    • resolve treaty-related tax disputes and issues in interpreting or applying a tax treaty.

    MAP provides a bilateral mechanism for the Australian competent authority (CA) to engage with the CA of another jurisdiction.

    You may request a MAP if you believe you are being taxed – or will be taxed – not in accordance with a tax treaty. Once you lodge your request, you do not take part in MAP negotiations. The CAs negotiate to resolve your request. They can also try to relieve double taxation in cases not covered by the tax treaty.

    Double taxation

    In most instances, MAP cases involve cross-border double taxation. This can happen when the domestic taxation provisions of two jurisdictions overlap. There are two types of double taxation:

    1. juridical double taxation – is where the same taxpayer is taxed in two jurisdictions on the same income, profits or gains
    2. economic double taxation – is where two separate taxpayers are taxed on the same income, profits or gains in different jurisdictions.

    In the present context, juridical double taxation may arise if:

    • each jurisdiction subjects the same taxpayer to tax on their world-wide income. For example, the taxpayer may be a resident of – and be taxed on the same income in – both jurisdictions
    • a resident of one jurisdiction derives income in the other jurisdiction and both jurisdictions impose tax on that income or part of that income – for example, if the country of source imposes a withholding tax on a royalty payment, and the country of residence taxes the taxpayer on their world-wide income by assessment.

    Economic double taxation may arise where a jurisdiction adjusts a resident taxpayer’s taxable income by applying the arm's length principle to transactions between it and an associated taxpayer in another jurisdiction (a primary transfer pricing adjustment).

    This may result in double taxation because the taxpayer whose taxable income is increased will be liable to pay tax in one jurisdiction on an amount of profit the associated taxpayer will also be liable to pay tax on in the other jurisdiction.

    Relief from double taxation

    Relieving juridical double taxation

    Australia’s domestic law and tax treaties provide mechanisms to relieve juridical double taxation including:

    • an exemption for foreign source income or a foreign income tax offset under domestic law
    • credits (in the form of foreign income tax offsets domestically) for foreign tax paid being allowed against Australian tax payable under the relevant treaty.

    Other mechanisms in Australia’s tax treaties can prevent juridical double taxation from occurring in the first place, for example:

    • residency tie-breaker rules
    • allocating exclusive taxing rights over certain types of income.

    Most of Australia's tax treaties contain an article which eliminates double taxation by obliging the country of residence to provide relief from juridical double taxation.

    Applying this article is subject to the provisions of Australia’s domestic law about the allowance of a tax offset against Australian tax for income tax paid in a foreign country (Division 770 of the ITAA 1997). The domestic provisions, however, cannot affect the general principle of this article to eliminate juridical double taxation.

    Relieving economic double taxation

    Economic double taxation can arise when a jurisdiction makes a primary transfer pricing adjustment consistent with the associated enterprises article in Australia’s tax treaties.

    The other jurisdiction may then be required to make an appropriate adjustment to the amount of tax charged on the profits of the associated enterprise in that jurisdiction in order to relieve economic double taxation (a correlative adjustment). A correlative adjustment may not resolve all double taxation.

    When another jurisdiction makes the primary transfer pricing adjustment, the Australian CA can provide unilateral relief under section 24 of the International Tax Agreements Act 1953 (the Agreements Act 1953); however, usually CAs of both jurisdictions will consult with each other.

    Section 24 of the Agreements Act 1953 allows for adjustments to taxable income or to a tax loss. Your tax losses may increase when we apply this section.

    See also:

    Taxes included in a tax treaty

    The 'taxes covered' article outlines the taxes that a particular tax treaty covers. For Australia, this may include:

    • federal income tax
    • fringe benefit tax
    • resource rent tax.

    Penalties and interest on such taxes are excluded.

    See also:

    When you can request a MAP

    You may request a MAP when you consider the actions of one or both jurisdictions results – or will result – in taxation not in accordance with a tax treaty. The risk of such taxation must be probable (not merely possible). This can arise from a variety of actions by a jurisdiction, including:

    • a notice of assessment or amended assessment
    • a statement of audit position
    • a private ruling
    • a certificate of withholding.

    Also, you may request MAP when you have initiated an adjustment in good faith. For example, if you lodge a self-amendment request or a request under the domestic laws of a treaty partner country to amend a tax return to adjust the price of your related party transactions, or the profits attributable to a permanent establishment, to reflect arm's length conditions.

    We will consider your self-initiated adjustment to be made in good faith if:

    • it reflects a good faith effort on your part to ensure that you are reporting your income or profits correctly
    • you have fulfilled properly and in a timely manner all your taxation obligations related to the income or profits under the domestic tax laws of both jurisdictions.

    See also:

    • Determining if your case is justified

    Time limit for requesting MAP

    Most of Australia’s tax treaties require you to request your case be reviewed in a MAP within three years of you first being advised that you are to be – or likely to be – taxed not in accordance with a treaty. However, the time limit specified in the article dealing with MAP in each of Australia’s tax treaties varies.

    We will apply this limit in a way that is most favourable to you – the time limit for submitting a MAP request will usually start from the day the notice of assessment or amended assessment issues.

    We cannot accept your MAP request after the time limit expires.

    MAP and the general anti-avoidance rules

    You are able to request MAP for tax that results from the application of the general anti-avoidance rules in Part IVA of the ITAA 1936.

    This includes the multinational anti-avoidance law and the diverted profits tax rules both of which are a part of Part IVA.

    Importantly, however, Part IVA is not restricted by the application of Australia’s tax treaties (see subsection 177B(1) of the ITAA 1936 and subsection 4(2) of the Agreements Act 1953) and therefore it prevails regardless of whether the resultant tax is contrary to the provisions of a treaty. As a result, the ATO cannot resolve a case under MAP to the extent that it involves the application of Part IVA.

    See also:

    MAP and settlements

    You are able to request MAP for matters which are the subject of a settlement agreement with the ATO. However, settlement agreements are intended to resolve the matters in dispute for both parties and there may be consequences under the settlement deed for continuing the dispute through the MAP process. We recommend you consider possible double taxation, and whether you intend to request MAP, prior to entering into a settlement agreement.

    How you request a MAP

    You must submit your request for MAP to the relevant CA within the period required.

    The relevant CA may be the CA of your country of residence or nationality, or the CA of either country, depending on the wording in the MAP article of the relevant tax treaty.

    For the Australian CA to be able to accept your MAP request, it must contain sufficient information for us to determine if your case is justified.

    You must provide the following information and documentation as part of your request:

    • identity of the taxpayers covered in the request including    
      • name
      • address
      • taxpayer identification number or date of birth
      • contact details
      • where applicable, the relationship between the taxpayers covered in the request
       
    • basis for the request, specifying the articles of the relevant treaty you consider one or both jurisdictions are not applying correctly and the jurisdiction applying the treaty
    • all relevant facts of the case and any documentation supporting those facts, including    
      • income years or other periods
      • amounts involved with details of what is to be adjusted and the basis of the calculation
       
    • analysis of the issues you want resolved under the MAP, including how you think the specific treaty provisions should be interpreted to support your claim that one or both jurisdictions have not applied the treaty correctly. You should support your analysis with relevant documentation, such as    
      • transfer pricing documentation required under legislation or in accordance with published guidance
      • copies of tax assessments, audit or other tax administration documentation reflecting what you consider to be the incorrect application of the relevant treaty provisions
      • copies of briefs or objections submitted by you in response to the tax administration's action
       
    • if you have submitted the MAP request to the other jurisdiction's CA, provide    
      • the date the request was submitted
      • the name and designation of the person, or the office, to which the MAP request was submitted
      • a copy of the request including all documentation filed with it, unless the content of both MAP requests are identical
       
    • whether the issues involved have been dealt with previously, for example, in a ruling, advance pricing arrangement, settlement agreement, or tribunal or court decision – you should provide a copy of any such ruling, agreement or decision
    • a statement confirming all information and documentation provided in the MAP request is accurate and that you will help the CA to resolve the issues by providing any other information or documentation requested by the specified dates.

    If a related taxpayer submits a MAP request to another CA regarding taxation not in accordance with a treaty involving Australia, you should also provide a copy of the MAP request to us. This helps us to do preliminary analysis – potentially reducing the time taken to resolve the MAP.

    Note: We may reject your request if you do not provide the information and documentation listed above.

    See also:

    Address to submit MAP requests

    To submit a MAP request to the Australian competent authority, email it and any other correspondence relating to a MAP to internationalsgatekeeper@ato.gov.au

    Alternatively, our postal address for submitting MAP requests is:

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

    MAP requests involving multiple jurisdictions

    The article in each of Australia’s comprehensive tax treaties dealing with MAP allow CAs to consult with each other and negotiate bilaterally. However, the CAs of each jurisdiction can be part of what are, in practice, multilateral MAP negotiations when:

    • you have presented separate and concurrent MAP requests under each tax treaty involved and each jurisdiction has accepted the MAP request you presented to them
    • every jurisdiction involved has a tax treaty providing for MAP with each of the other jurisdictions.

    Timeframes for resolving a MAP case

    The ATO has committed to the OECD’s recommended average timeframe of 2 years to resolve MAP cases. However, we will try to resolve your case as quickly as possible. In the meantime, we will communicate with you and with the other jurisdiction on a timely basis and keep you informed of the progress of your case.

    Some of Australia's tax treaties give you the right to seek arbitration if the MAP case is not resolved within the time frame specified in the relevant tax treaty.

    See also:

    Time limits on implementing the MAP outcome

    Most of Australia’s tax treaties state that any MAP agreement will be implemented despite any domestic time limits.

    If a treaty does not include this, time limits under domestic law apply.

    Domestic time frames for amending your income tax assessment are set out in particular parts of the income tax law, for example, in section 170 of the ITAA 1936 and section 815-150 of the ITAA 1997. These time frames can be extended in some circumstances.

    The ATO will work with the CAs of our treaty partners to ensure that all MAP agreements are implemented.

    See also:

    Limiting the need for MAP requests

    You may seek an advance pricing arrangement to minimise the need for a MAP and reduce the risk of being subject to double taxation as a result of transfer pricing or profit reallocation adjustments in future years.

    See also:

    MAP process responsibilities

    A number of ATO personnel can be part of the MAP process.

    The ATO's APA/MAP Program Management Unit

    The APA/MAP Program Management Unit (PMU) is responsible for the general administration of the MAP process. The PMU:

    • receives your MAP request and acts as your initial point of contact
    • reviews your MAP request to ensure it has been lodged within time and with the correct jurisdiction
    • assigns a CA to your case and helps the CA to manage it.

    See also:

    The competent authority (CA)

    • The CA in consultation with the PMU – reviews your MAP request to determine if it is justified
    • determines whether we will relieve double tax, or whether we can otherwise resolve your case, unilaterally
    • tries to resolve your MAP case in line with the relevant tax treaty
    • communicates directly with the other jurisdiction's CA involved in your MAP case

    In trying to resolve your MAP case, the CA may get specialist advice or input from other ATO personnel.

    See also:

    Other ATO staff

    Other ATO personnel may provide:

    • administrative support
    • information and help if they have a history of engagement with you or with your industry
    • specialist advice – for example economists who may provide further economic analysis on the adjustment made or proposed by us or help to evaluate the adjustment made by the other jurisdiction.

    These staff may communicate directly with you to request further information or to keep you updated with developments. They do not communicate with the other jurisdiction's CA.

    ATO staff involved in the original action or adjustment will only be present at CA negotiations in order to provide factual information or background analysis that would help the CA deliberations. This is to preserve the independence of the CA and the MAP process.

    You, the taxpayer

    While you initiate the MAP process by making a request to a CA and we advise you of progress, you are not permitted to attend MAP negotiations.

    If the CAs in both jurisdictions agree, you may present arguments in support of your case to both jointly. If they do not agree, the Australian CA will give you an opportunity to present your arguments to the Australian CA.

    MAP stages

    Stage one

    The first stage in the MAP process has three steps:

    1. you submit your request to the APA/MAP program management unit
    2. the CA considers whether your request is justified
    3. if your request is justified, the CA determines if we can provide unilateral relief.

    Step 1: Submitting your request

    When we receive your completed MAP request, we will confirm whether you submitted it in time and to the correct CA.

    We will not accept a MAP request received out of time as there is no mechanism in
    Australia’s tax treaties for the CA to extend the time allowed to submit a MAP request.

    If you want to pursue domestic remedies in either jurisdiction, but are concerned about exceeding the time limits for presenting a case, you can lodge a protective MAP request

    See also:

    Step 2: Determining if your case is justified

    A CA will determine your case is justified if:

    • you have provided a sufficient factual and legal basis for your case
    • your MAP request demonstrates that    
      • the actions forming the basis of the request results or will result for you in taxation not in accordance with a tax treaty
      • the risk of such taxation is at least probable, not just possible.
       

    The CA will accept that the risk of taxation not in accordance with a treaty is probable if you have received written notification from us or the tax administration of a treaty partner country of an actual or proposed action. The notification should include details of what is to be adjusted, the amounts and the basis of calculation.

    After the CA determines the MAP request is justified, they will let you know your case has been accepted and placed into our MAP program.

    Actions that do not justify a MAP request include:

    • an audit or examination of your affairs or those of an associated foreign entity prior to the issue of a statement of audit position or equivalent position paper from another jurisdiction
    • exchange of information requests about dealings between you and an associated foreign entity
    • discussions between you (or an associated foreign entity) and us (or a foreign tax jurisdiction) about your tax affairs
    • public advice and guidance of a general nature, even if you believe it could apply to you and, if applied, may result in taxation not in accordance with the treaty.

    If the CA considers that your case is not justified, then we will advise you that we will take no further action in relation to your request.

    Step 3: Unilateral relief

    We will decide whether we can reach an appropriate solution ourselves. If this is not possible, such as when the taxation not in accordance with the tax treaty is due wholly or in part to an action taken in the other jurisdiction, we will try to resolve your case by mutual agreement with the CA of that jurisdiction (stage two).

    Stage two

    In this stage, we negotiate with the CA of the other jurisdiction. Both CAs will do their best to resolve your case. However, this does not mean that the CAs will resolve every case or necessarily relieve all taxation not in line with the treaty.

    In all instances and as part of the negotiations, the CAs will seek to establish a mutual understanding of the relevant principles embodied in the treaty, the facts of your case and how those principles are to be applied so as to relieve any taxation not in accordance with the treaty.

    For example, if we make the primary transfer pricing or profit reallocation adjustment, the Australian CA will try to demonstrate to the other CA that:

    • the adjustment results in tax in accordance with the treaty
    • the treaty partner country should relieve any resultant double tax.

    We will also seek to comprehend fully the other CA’s position and explore opportunities to reach agreement.

    How competent authorities communicate with each other

    CAs usually provide their positions to each other by exchanging position papers. If the CAs do not reach agreement after exchanging MAP position papers, they may discuss the matter with each other directly.

    In preparing our MAP position paper, we may take into account relevant information you provide (including information about your foreign associates) and information gained from any prior compliance activity.

    Competent authority mutual agreement

    An appropriate solution arrived at by both competent authorities may result in us:

    • restoring your original tax position by withdrawing the adjustment which led to your MAP request
    • making a correlative adjustment or providing a tax offset or credit to relieve any double taxation
    • amending your tax assessment or tax payable if you agree with the MAP outcome.

    You may proceed with your domestic objection, review or appeal rights in relation to the assessment (or amended assessment) arising from issues that are outside the scope of the MAP or otherwise left unresolved.

    What happens if you disagree with the MAP outcome

    If you do not agree with the MAP outcome agreed by the CAs, you can seek tax relief under your domestic objection, review and appeal rights. In this case, the CAs will finalise your MAP case without implementing the agreement reached.

    See also:

    Impact of domestic dispute resolution processes on the MAP process

    The MAP provides an additional dispute resolution process to those available under the domestic legislation of Australia and other jurisdictions. You can request MAP regardless of the remedies provided by domestic law. If you are pursuing domestic law remedies, we will try to progress your MAP case as much as is possible, depending on the circumstances of your case.

    See also:

    Protective MAP request

    If you want to pursue domestic remedies in either jurisdiction, but are concerned about exceeding the time limits for presenting a MAP case, you can lodge a protective MAP request.

    If the request meets the requirements of MAP, we will:

    • accept the MAP request
    • advise the other jurisdiction of the request
    • defer CA negotiations until you inform us you would like the case to progress.

    Pursuing domestic remedies in the other jurisdiction

    Whether a MAP can progress while your objection, review and appeal rights are ongoing in the other jurisdiction depends on whether the CA in that jurisdiction is prepared to proceed with MAP negotiations concurrently.

    We will defer issuing any amended assessment, which can include a foreign income tax offset, until such time as the review and appeal rights in the tax treaty partner country have lapsed or are rescinded or exhausted.

    Pursuing Australian domestic remedies

    Where your matter is subject to administrative or judicial review, we may defer progressing your MAP request until the tribunal or court has made its determination.

    Where you seek internal independent review after receiving a statement of audit position from us, we will conduct the independent review concurrently with progressing your MAP request.

    Objections

    Objection undecided when CAs reach agreement

    Three scenarios can occur when the CAs reach agreement on your MAP request and you have an undecided objection. These are set out below:

    Scenario 1 

    If the CAs agree to restore you to your original tax position, we will finalise your MAP case. You will need to withdraw your objection in writing.

    Scenario 2 

    If both CAs resolve your MAP request whereby the adjustment is wholly or partly maintained and you agree with the agreement reached by the CAs, then you will need to withdraw your objection in writing.

    Scenario 3 

    If you are dissatisfied with the CA’s agreement, you can continue to pursue your domestic objection and review or appeal rights. As above, the CAs will finalise your MAP case without implementing the agreement reached.

    Objection finalised before CA’s reach agreement

    If we allow an objection in full and there is no longer any taxation that is not in line with the provisions of the tax treaty, we will finalise the MAP case. If all, or some, of the MAP issues remain unresolved following an objection decision, the MAP will continue in an attempt to resolve the case.

    If the CAs have not agreed on an appropriate solution by the time we decide to disallow, or allow in part, your objection, you have the right to apply to the Administrative Appeals Tribunal (AAT) for a review of the objection decision or appeal to the Federal Court against the objection decision. Whether or not we continue the MAP during the review and appeal stages will be considered on a case by case basis.

    Court or tribunal decisions

    Once the AAT has made a decision or the Federal Court has made an order, the Australian CA will abide by that decision or order.

    When such a decision or order has been made, the Australian CA will seek to demonstrate to the other jurisdiction’s CA that the adjustment, consistent with the decision or order, is in line with the relevant tax treaty and that the other country should relieve the applicable double tax.

    Seeking arbitration to resolve a MAP case

    If the CAs involved in your case have not reached agreement within two years (three years for certain tax treaties) and the relevant tax treaty provides for arbitration, you can request that the CAs submit any unresolved issues to arbitration. 

    The Treasury Laws Amendment (OECD Multilateral Instrument) Act 2018 gives the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) the force of law in Australia. The MLI will modify some of Australia’s tax treaties to provide for mandatory binding arbitration. The date of effect and the availability of mandatory binding arbitration will vary between each tax treaty.

    See also:

    Penalties and interest under MAP

    Our tax treaties exclude penalties and interest imposed under the law of either jurisdiction from being ‘tax’ for the purposes of the particular tax treaty. Therefore you cannot seek relief under a MAP for any penalties or interest.

    Interest paid by us on overpayments of tax resulting from MAP

    If we relieve taxation not in line with the tax treaty and this results in an overpayment of tax and the interest on overpayment rules apply, we may pay you interest on that overpaid amount.

    If the overpayment of tax has arisen from the provision of correlative relief for juridical or economic double taxation, the interest we pay is limited to the lesser of the amount of the:

    • interest payable under the Taxation (Interest on Overpayments and Early Payments) Act 1983 (Overpayments Act)
    • interest charged by the other jurisdiction making the transfer pricing or profit reallocation adjustment
    • relief being provided under the MAP agreement.

    This limitation applies to any year where correlative relief is provided by either amending the assessment of a year of income or by applying a credit for foreign taxes.

    Interest on overpayments arising from the provision of correlative relief will not be paid if the:

    • other jurisdiction does not require payment of interest on their primary adjustment that gave rise to the double taxation
    • interest required to be paid on that primary adjustment has not been paid by the time we provide relief from double taxation.

    If we were to pay interest in these circumstances, it would provide you with a windfall gain.

    Paying tax during the MAP process

    Requiring you to pay the tax that is the subject of your MAP request may result in double taxation until the case is resolved.

    For example, if we make a transfer pricing or profit reallocation adjustment, the same profits may become subject to tax in both jurisdictions. Also, if you are a dual resident, both jurisdictions may impose tax on the same income until the CAs in the MAP process resolve which jurisdiction is your country of residence for the purpose of the relevant tax treaty.

    If collecting tax during the MAP process may result in double taxation, we will defer legal action for recovery of those amounts, including any GIC, until an agreed future date (usually the date that the MAP is concluded), unless:

    • there is a risk to revenue
    • you have other liabilities unpaid after the due date, or
    • you have failed to meet other tax obligations when required.

    See also:

    Remission of GIC on tax which is part of a MAP and unpaid

    You can make a written request to have us remit general interest charge (GIC) accrued for unpaid tax.

    For example, we can consider remitting some or all GIC if we are satisfied that:

    • you did not cause the delay in payment and you have taken reasonable steps to mitigate that delay, or
    • there are special circumstances making it fair and reasonable to remit all or part of the GIC or it is appropriate to do so.

    If we have deferred recovery of your tax debt until the MAP is completed, we can consider remitting the GIC accrued during the MAP in respect of the tax actually paid in the other jurisdiction – on the profits that both countries claim to tax – provided you do not get a windfall gain from this.

    For example, remitting GIC arising from non-payment of tax in Australia from a transfer pricing or profit reallocation adjustment in Australia would result in a windfall gain for you or your economic group where the other jurisdiction pays interest on overpayment after granting correlative relief.

    We may also consider remitting GIC if either jurisdiction has caused unreasonable delays in the CAs resolving the MAP. This recognises the potential financial disadvantage you may otherwise suffer when subject to MAP.

    See also:

      Last modified: 24 Jun 2019QC 56904