Executive summary
On 14 April 2022, the Organisation for Economic Co-operation and Development (OECD) released the ninth batch of Stage 2 peer review reports relating to the outcome of the peer monitoring of the implementation by Andorra, Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Faroe Islands, Macau (China), Morocco, and Tunisia (the assessed jurisdictions) of the Base Erosion and Profit Shifting (BEPS) minimum standard on dispute resolution under Action 14 of the BEPS project.
The Stage 2 reports include four main sections: (i) preventing disputes; (ii) availability and access to MAP; (iii) resolution of MAP cases; and (iv) implementation of MAP agreements. They cover any relevant developments from the assessed jurisdictions between 1 September 2019 and 30 April 2021. In addition, jurisdictions can request feedback on their adoption of the best practices. None of the assessed jurisdictions made such a request.
The Stage 2 reports focus on evaluating the progress made by the assessed jurisdictions in addressing any of the recommendations that resulted from the Stage 1 peer review reports that were released on 27 July 2020.1 The outcomes of this batch of Stage 2 peer review reports generally demonstrate positive changes across the assessed jurisdictions. According to the peer review reports, Andorra, Bermuda, Faroe Islands, Macau (China), and Morocco have addressed most of the deficiencies identified in the Stage 1 peer review. Bahamas, British Virgin Islands, Cayman Islands, and Tunisia addressed some of the identified deficiencies. The assessed jurisdictions have committed to continue working to resolve the remaining deficiencies identified during the peer review process.
Detailed discussion
Background
In October 2015, the OECD released the final reports on all 15 Action areas of the BEPS project. The recommendations made in the reports ranged from new minimum standards to reinforced international standards, common approaches to facilitate the convergence of national practices, and guidance drawing on best practices.
The minimum standards are all subject to peer review processes. The mechanics of the peer review process were not specified in the final reports on these Actions. Instead, the OECD indicated at the time of the release of the BEPS final reports that it would, at a later stage, issue peer review documents on these Actions providing the terms of reference and the methodology by which the peer reviews would be conducted.
In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14 on dispute resolution. The Terms of Reference translated the minimum standard for dispute resolution into 21 elements and the best practices into 12 items. The Assessment Methodology provided procedures for undertaking peer review and monitoring in two stages. Both stages are coordinated by the Secretariat of the OECD Forum on Tax Administration’s Forum on Mutual Agreement Procedures (MAPs).
In Stage 1, a review is conducted of how a jurisdiction implements the minimum standard based on its legal framework for MAP and how it applies the framework in practice. In Stage 2, a review is conducted of the measures the jurisdiction has taken to address any shortcomings identified in Stage 1 of the peer review.
Following the release of the peer review documents, on 31 October 2016, the OECD released an assessment schedule (pdf) covering the peer review process on dispute resolution under Action 14 where it grouped the assessed jurisdictions into 10 batches for review. The peer reviews for some jurisdictions were deferred until 2020.2
Prior to this current release, the OECD had released 82 Stage 1 peer review reports which cover the first 10 batches of jurisdictions3 and 60 Stage 2 peer review reports which cover 8 batches of jurisdictions.4
Ninth batch of Stage 2 peer review reports
On 14 April 2022, the OECD released the Stage 2 peer review reports on the ninth batch of jurisdictions of the BEPS minimum standard on dispute resolution. The peer review reports were approved by the Inclusive Framework on BEPS on 17 March 2022.
The Stage 2 reports follow the same structure as the Stage 1 reports, with four main sections: (i) preventing disputes; (ii) availability and access to MAP; (iii) resolution of MAP cases; and (iv) implementation of MAP agreements.
The reports take into account any relevant developments from each jurisdiction between 1 September 2019 (i.e., from the month following the launch date of the Stage 1 review of the assessed jurisdictions) and 30 April 2021 (i.e., until the month of the launch of the Stage 2 review of the assessed jurisdictions), including developments relating to the tax treaty network of that jurisdiction and other developments regarding the minimum standard on dispute resolution. Further, the reports build on the MAP statistics for the years 2016 through 2020 (the Statistics Reporting Period).
In general, the progress of the assessed jurisdictions on addressing deficiencies identified in the Stage 1 reports has been scored as satisfactory in their respective reports, although not all show the same level of progress. According to the peer reviews, Andorra, Bermuda, Faroe Islands, Macau (China), and Morocco have addressed most of the deficiencies identified in the Stage 1 peer review. Bahamas, British Virgin Islands, Cayman Islands, and Tunisia addressed some of the identified deficiencies.
Prevention of disputes
Andorra, Faroe Islands, and Morocco meet the Action 14 minimum standard with respect to the prevention of disputes. Tunisia does not meet the Action 14 minimum standard concerning the prevention of disputes. Although Tunisia has in place a bilateral Advance Pricing Arrangement (APA) program, this program does not allow the roll-back of bilateral APAs. As the rest of the assessed jurisdictions do not have a bilateral APA program in place, there are no further elements to assess regarding the prevention of disputes.
Availability and access to MAP
All of the assessed jurisdictions, except Andorra, meet all or most of the requirements regarding the availability and access to MAP under the Action 14 minimum standard. Andorra meets some of the requirements regarding the availability and access to MAP.
Bermuda, Faroe Islands, Macau (China), Morocco, and Tunisia have issued clear and comprehensive guidance on the MAP availability and how it applies in practice. Andorra, Bahamas, British Virgin Islands, and the Cayman Islands have not published guidance on the availability of MAP and how it applies in practice under tax treaties.
All tax treaties of Andorra, Bahamas, Bermuda, Cayman Islands, Faroe Islands, Macau (China), and Morocco contain a provision relating to MAP. All but two of the British Virgin Islands and Tunisia’s tax treaties, respectively, contain a provision relating to MAP. Those treaties mostly follow paragraphs 1 through 3 of Article 25 of the OECD Model Tax Convention 2017.
The Multilateral Instrument (MLI) has been signed by Andorra, Morocco and Tunisia but it has only been ratified by Andorra. The MLI will bring a number of their treaties in line with the Action 14 minimum standard. In addition, there are bilateral negotiations either ongoing or concluded that would also align the treaties under negotiation with the Action 14 minimum standard. For example, Andorra and Bahamas’ tax treaties are already in line with the Action 14 minimum standard. Bermuda, British Virgin Islands, Cayman Islands, Faroe Islands, Macau (China), Morocco, and Tunisia reported that they intend to update all of their tax treaties to be compliant with the requirements under the Action 14 minimum standard through bilateral negotiations.
Resolution of MAP cases
Regarding the average timeframe to resolve MAP cases during the Statistics Reporting Period, only the Faroe Islands closed MAP cases within the average time of 24 months, which is considered as the appropriate time period to resolve a MAP under Action 14. Morocco and Tunisia did not close cases within the average timeframe. The remaining jurisdictions had no MAP experience.
Additionally, on the evolution of the MAP caseload over 2016 to 2020, the caseload increased in Morocco and Tunisia and decreased in the Faroe Islands. For the rest of the assessed jurisdictions, there was no increase or decrease of the MAP caseload because these jurisdictions have not been involved in any MAP cases during the Statistics Reporting Period.
Implementation of MAP agreements
All of the assessed jurisdictions, except Faroe Islands and Morocco, meet the Action 14 minimum standard with respect to the implementation of MAP agreements. Faroe Islands and Morocco monitor the implementation of MAP agreements. However, they have a domestic statute of limitations under which there is a risk that MAP agreements cannot be implemented irrespective of whether the applicable tax treaty contains the equivalent of Article 25(2), second sentence, of the 2017 OECD Model Tax Convention.
Next steps
The OECD will continue to publish Stage 2 peer review reports in accordance with the Action 14 peer review assessment schedule, with the 10th and last batch of Stage 2 peer reviews expected to be released in a few months.5 The assessed jurisdictions will continue to work to address the remaining deficiencies identified during the peer review process.
The OECD had planned to review the Action 14 peer review assessment methodology by 2020 based on the experience in conducting peer monitoring and recognizing the need for an assessment methodology that effectively improves the shortcomings identified in the peer review reports with the aim of ensuring an effective MAP. Although this timeframe was not met, in November 2020, the OECD released a consultation document to get input on additional elements to strengthen the Action 14 minimum standard and the MAP Statistics Reporting Framework. Following the input received, the OECD held a public consultation on the review of the minimum standard on dispute resolution under BEPS Action 14 in February 2021.6 At this time, it is still not clear when revised materials on Action 14 will be released.
Implications
In a post-BEPS world, where multinational enterprises (MNEs) face significant scrutiny from tax authorities and the number of MAP cases continues to increase, the release of the peer review reports reflects the continued recognition of the importance to MNEs of tax certainty with respect to their cross-border transactions. While increased scrutiny and greater subjectivity increases the risk of double taxation, the continued focus by the OECD and participating jurisdictions on the implementation of effective dispute resolution mechanisms can be seen as a positive in helping to improve access to an effective and timely MAP process. Further, the peer review process contributes to the ongoing monitoring of jurisdictions’ capacity to resolve disputes timely.
The peer review reports also provide insights on the availability and effectiveness of MAP in the assessed jurisdictions that may be useful to taxpayers. As additional jurisdictions continue to be reviewed, the OECD has made clear that taxpayer input is welcome on an ongoing basis.
Assessed jurisdictions have committed to continue working to solve the deficiencies identified during the peer review process and make the relevant changes to their tax treaties and MAP process. Companies should monitor the peer review results and assess the potential implications in jurisdictions that are relevant to them.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Rotterdam
- Marlies de Ruiter
- Maikel Evers
- Ronald van den Brekel
Ernst & Young Belastingadviseurs LLP, Amsterdam
- David Corredor Velasquez
- Konstantina Tsilimigka
- Roberto Aviles Gutierrez
Ernst & Young Limited (New Zealand), Auckland
- Matt Andrew
Ernst & Young Solutions LLP, Singapore
- Luis Coronado
Ernst & Young LLP (United Kingdom), Global Tax Desk Network, London
- Joel Cooper
Ernst & Young LLP (United States), Global Tax Desk Network, New York
- Jose A. (Jano) Bustos
Ernst & Young LLP (United States), Washington, DC
- Barbara M. Angus
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
