It is said that the TP disputes lead the international tax dispute arena. Nearly 60% of the international tax disputes are in connection with TP. Landmark disputes relate to reputed MNEs like – Coca-Cola, A/S Norske Shell, Phillips, DHL, P&G, GSK, etc.
Generally, Country regulations provide for the traditional dispute resolution mechanism. These include the normal appellate route, safe harbor, etc. However, such a mechanism resolves country-specific disputes and therefore leaves transacting entity-level double taxation issues
unanswered. Further, the traditional mechanisms are time-consuming and usually, time takes multiple years for an amicable resolution.
The answer to resolving large TP disputes in a timely and cost-effective manner and more importantly addressing largely the double taxation issue, there is international consensus to alternative dispute resolution mechanisms viz. Advance Pricing Agreement and invoking the Mutual Agreement Procedure (MAP) available in tax treaties.
Advance Pricing Agreement
APA refers to an agreement between Taxpayer and Tax Authorities confirming the arm’s length pricing thus ensuring certainty in the TP matters. It started with Japan introducing a system called Pre confirmation System in 1987, which was akin to the unilateral APA process.
The USA followed it in 1988 and thereafter several other countries have introduced the program, which includes Canada, Australia, Mexico, New Zealand, Korea, China, the UK, Germany, India, KSA, Qatar, Oman, etc., and Egypt too. As per the information available, more than 95 countries have APA provisions in place at present.
Unilateral APA refers to a country-specific arrangement i.e it does not involve the transacting entities and the respective country authorities. Therefore, the inherent nature of such APA does not address the double taxation issue.
Bi-lateral (involving two countries' authorities) and Multi-lateral (involving multiple jurisdictions) APAs can address the said issue by providing corresponding adjustments.
APA is also a useful tool in addressing the diverse regulatory provisions (TP vs Customs, discussed earlier). However, the proposed UAE CT Regulations do not indicate any provision for APA. We would have to wait for the final print to confirm whether the UAE would have APA provisions.
MAP
On the other hand, MAP is an alternate dispute resolution available under tax treaties. Article 9 and 25 of the MC provides for such a mechanism. As a process, the dispute is referred to and attempted to be resolved between the Competent Authorities of the two countries.
