Double taxation and the role of the Irish Competent Authority – Mutual Agreement Procedure
International double taxation may arise where two countries seek to tax the same transactions or activities and whilst double taxation agreements (DTA) may, in principle, resolve these issues, double taxation may not be fully eliminated where two jurisdictions disagree on the basis for taxation.
As an alternative to domestic remedies (discussed further below), taxpayers may seek assistance in resolving double taxation through the mutual agreement procedure (or 'MAP'). The Irish Competent Authority is the statutory body tasked with engaging with counterparty tax authorities in such processes. In effect, MAP is a mechanism for tax authorities to discuss and agree the cross-border taxation of specific transactions with a view to coordinating the approach for the benefit of the requesting taxpayer.
The Organisation for Economic Co-operation and Development (OECD) publishes MAP statistics annually indicating the MAP caseload by jurisdiction across Inclusive Framework member jurisdictions. These statistics show a steady increase in the number of MAP cases submitted to the Irish Competent Authority year on year over the last number of years. With the global tax landscape becoming increasingly complex and many tax authorities committing additional resources to audit and enforcement activities, this is a trend we expect to see continue.
In this insight, we provide an overview of the MAP process, including the Irish Competent Authority's role and what a taxpayer can expect from a MAP application through to determination of the matter. For further detail on Advanced Pricing Agreements see our insight and for detail on Correlative Relief see our insight.
Legal basis for MAP: DTAs, EU Arbitration Convention, EU Tax Dispute Resolution Directive
Article 25 of the OECD Model Tax Convention on Income and on Capital (MTC) provides a mechanism for tax authorities to resolve disputes where an action of a contracting state results in taxation not in accordance with the treaty. When Ireland enters into a tax treaty with another jurisdiction it therefore has a legal obligation to provide a competent authority function to resolve disputes that arise under that particular treaty. Disputes in this context can include transfer pricing matters or other actions resulting in double taxation, including, for example:
- Classification of payments such as interest, royalties or dividends.
- Presence of a permanent establishment and resultant recognition / attribution of profits to it.
- Interpretation and application of the beneficial ownership terms of a treaty.
Taxpayers may also present a MAP request pursuant to the following, although these avenues are limited to intra-EU disputes only:
- Article 6 of the EU Arbitration Convention in relation to transfer pricing related adjustments or matters pertaining to allocation of profit to permanent establishments.
- EU Tax Dispute Resolution Mechanism Regulations 2019 (EU TDRM) where a dispute arises from the interpretation / application of a DTA or the EU Arbitration Convention (subject to certain time limits).
A MAP based on a DTA is therefore the only alternative in cases that involve Ireland and a country that is not a member of the EU, and only if Ireland has a DTA in force with that country. Where more than one avenue is available the taxpayer may choose the best alternative. There are a number of factors that may feed into that decision like, for example, applicable time limits and availability of mandatory binding arbitration (discussed further below). If a taxpayer requests MAP via EU TDRM, priority is given to that procedure and all other MAPs invoked via alternative means (DTA / EU Arbitration Convention) must cease.
A MAP request must be made in writing within the relevant time limit and to the appropriate Competent Authority.
For MAP applications made pursuant to the equivalent of Article 25 MTC, the time limit is set out in the relevant treaty. Treaties that follow Article 25 MTC provide for a request to be made within 3 years from the date of first notification of the action resulting in taxation not in accordance with the treaty. However, as the time limit can vary depending on the particular DTA, it is important to have regard to the terms of the specific treaty in question to ensure that the relevant time limit is respected.
For MAP applications made pursuant to Article 6 Arbitration Convention or the EU TDRM, the request is to be made within 3 years from the date of first notification of the action resulting or likely to result in double taxation. Each of these respective legal frameworks require determination of the MAP request within 24 months of a completed MAP request (with a potential for extension).
The Irish Competent Authority is committed to resolving MAP cases within 24 months of a completed MAP request (in line with OECD best practice recommendations). However, this is dependent on a number of factors such as complexity of the case, co-operation of the taxpayer and the number of rounds of negotiations. OECD statistics continue to highlight Ireland as being well equipped to deal with tax disputes submitted to MAP, with relatively shorter time taken to resolve matters (in particular non-transfer pricing related disputes) as compared to other jurisdictions.
Certain information / documentation is required to be submitted in order for the request to be valid for time limit purposes and this depends on whether assistance is sought via DTA, EU Arbitration Convention or the EU TDRM.
From a DTA perspective the request should specify at a minimum:
- tax periods concerned
- nature of the action giving rise, or expected to give rise, to taxation not in accordance with the treaty
- full names and addresses of the parties to which the MAP relates
An EU Arbitration Convention request or an EU TDRM request requires further additional information to qualify as a valid request for time limit purposes and this is set out in detail in relevant Irish Revenue guidance1.
Further information is required from a DTA / EU Arbitration Convention perspective to qualify as a complete MAP request ready for review by the relevant Competent Authorities. This includes, broadly:
- identification of the tax treaty and article(s) in that treaty that are relevant to the MAP request
- facts and circumstances of the case including supporting documentation
- demonstration of how the applicant believes double taxation has or is likely to occur through misapplication of the stipulated tax treaty provision(s)
- any domestic proceedings concerning the issues intended to be negotiated
- disclosure of whether the issue is subject to an APA
- confirmation of whether the MAP request was also submitted to another Competent Authority
Receipt of this latter information determines the start date for a MAP request under a DTA or the EU Arbitration Convention and this start date is relevant for the purposes of computing the time taken to resolve the MAP request (i.e. objective of 24 months). The starting point of the 24-month period for the Irish Competent Authority to endeavor to resolve a dispute raised pursuant to the EU TDRM is the date of notification of the decision to accept the request / complaint by a Competent Authority.
Once the MAP process has begun there are likely to be further information requests as the Competent Authorities undertake their detailed analysis. Typically, all information is provided simultaneously to both authorities enabling them to review the same information contemporaneously and conclude on their respective positions.
Stages and outcomes of the MAP process
The Irish Competent Authority endeavors to notify the taxpayer in writing within 30 days of receipt of a MAP request pursuant to a DTA or the EU Arbitration Convention whether the request is accepted or rejected (with reasoning for same). If the Irish Competent Authority rejects a MAP request pursuant to the EU TDRM but the counterpart accepts, the taxpayer can request a review of the matter by an advisory committee. If all Competent Authorities reject a MAP request pursuant to the EU TDRM, the taxpayer can appeal the Irish Competent Authority’s decision to the Tax Appeals Commission (TAC) within the standard 30 days notice of the decision to reject the request. For more information on the TAC process see our insight.
Once accepted the first stage of the process is the unilateral stage whereby the Irish Competent Authority will attempt to resolve the matter unilaterally without regard to the other Competent Authority.
If the Irish Competent Authority is not in a position to provide relief unilaterally, it will contact the contracting Competent Authority and begin the bilateral stage of the process. This bilateral process is a formal government-to-government negotiation. Whilst taxpayers may have a role in those discussions and the Irish Competent Authority will typically take a taxpayer's perspectives on board, ultimately the Competent Authority will make its own independent determination and engage with counterparts accordingly.
There are therefore a number of potential outcomes depending on the MAP process pursued and the extent to which bilateral engagement is required:
- Unilateral relief: with respect to a foreign initiated adjustment, the Irish Competent Authority accepts the adjustment made by the foreign tax authority and provides relief from double taxation without engaging with the other Competent Authority, i.e. by way of correlative adjustment.
- Full or partial elimination of double taxation: the Competent Authorities agree on full or partial elimination of double taxation. If the taxpayer is amenable to the outcome it confirms in writing whether it accepts the mutual agreement within 30 days and should proceed to seek a refund from the relevant tax authority. If the taxpayer rejects the outcome it can withdraw from the MAP process and thereafter pursue domestic remedies (see further below).
- No agreement: in the absence of mandatory binding arbitration (see further below) the Irish Competent Authority will notify the taxpayer of the inability to reach agreement within 30 days of the determination and is not obliged to engage further with the Competent Authority in the relevant foreign jurisdiction.
Interaction between MAP and domestic remedies
As regards the interaction between MAP and domestic remedies, a taxpayer may request MAP assistance irrespective of the remedies provided by Ireland's domestic law. Therefore, a taxpayer may request MAP assistance from the Irish Competent Authority in situations where a decision has been rendered by an Irish court or TAC, however the Competent Authority cannot derogate in the MAP from a decision of TAC or the highest court in which the matter is heard. In such circumstances relief would likely be limited to correlative adjustment in the counterparty jurisdiction if the decision of TAC or the Irish court has concluded on the quantum of the Irish tax due.
Relief would likely be limited to correlative adjustment in the counterparty jurisdiction if the decision of TAC or the Irish court has concluded on the quantum of the Irish tax due
If a taxpayer has commenced judicial proceedings in relation to the same point on which MAP assistance is sought, as a practical matter, the Irish Competent Authority will generally request the taxpayer to agree to the suspension of its judicial or administrative remedies pending the outcome of the MAP. Where a taxpayer does not agree to suspend the administrative or judicial remedies, the Irish Competent Authority will generally delay the MAP process pending the outcome of the administrative or judicial remedies. That said, matters involving domestic proceedings can have a different focus from the specific request under MAP (e.g. characterization vs. transfer price) in which case domestic proceedings can potentially proceed whilst a MAP request is ongoing.
Mandatory binding arbitration (MBA)
MBA may apply depending on the avenue pursued:
- DTA request: certain Irish treaties contain MBA clauses committing the contracting states to a process of arbitration in the event of no agreement. Ireland has opted into the MBA clause in the multilateral instrument (MLI) such that MBA will apply to Irish DTAs where the treaty partner has also implemented the relevant provisions of the MLI. Regard must therefore be had to the particular DTA and the treaty partner's MLI status.
- EU Arbitration Convention request: if resolution is not achieved within 24 months then an advisory committee is set up to decide the case and deliver a decision within 6 months (unless both Competent Authorities by mutual agreement and with the agreement of the taxpayer concerned waive the 24 month time limit). The Competent Authorities must then act within 6 months in accordance with that decision unless they reach an alternative agreement to eliminate double taxation.
- EU TDRM request: if resolution is not achieved within 24 months (36 months where extended) the taxpayer can request an advisory committee to be set up to decide the case and deliver a decision within 6 months (or by extension 9 months). The Competent Authorities must then act within the period unless they reach an alternative agreement to eliminate double taxation.
One of the downsides of MAP generally is that, absent MBA, Competent Authorities are not obliged to reach agreement. Taxpayers can therefore allocate significant time and resources pursuing MAP relief but depending on negotiations may not have a result / certainty at the conclusion of that process. MBA addresses this deficiency and ultimately encourages Competent Authorities to seek to work harder to reach agreement within the target 24-month timeframe. As a result, we expect the greater availability of MBA to have a positive impact on MAP outcomes for taxpayers.
Although the Irish Competent Authority does not pursue multilateral MAPs, where a MAP issue involves more than two jurisdictions, the Irish Competent Authority will consider entering into a series of bilateral MAPs as a way of dealing with such multilateral situations. This process can include conducting multilateral meetings with other Competent Authorities where MAP is available in those jurisdictions via appropriate DTA provisions.
Considerations when seeking to invoke MAP
MAP is a valuable tool that should be considered by taxpayers when selecting the most effective means of resolving tax disputes with an international dimension. It offers taxpayers a less contentious means of dispute resolution when compared with alternative domestic remedies. The recent adoption of the EU TDRM coupled with Ireland’s decision to elect in favour of MBA under the MLI, will also serve to increase the prospect of greater certainty for taxpayers embarking on MAP applications in the future.
As the international tax landscape becomes increasingly complex, an effective Competent Authority function is a key resource for taxpayers seeking to navigate the ever-changing world of international tax. The Irish Competent Authority has expanded significantly in recent years in response to the increased demand for MAP assistance by Irish taxpayers and recent statistics demonstrate their ability to resolve MAP cases efficiently with largely favourable outcomes for taxpayers.
Our team are available to discuss questions in relation to MAP and international tax disputes as and when required. For more information on this please contact Amelia O'Beirne, Partner, Bryan Hughes, Senior Associate, or any member of A&L Goodbody's Tax Disputes and Enquiries team.
 Irish Revenue Commissioners Tax and Duty Manual Part 35-02-08
Date published: 24 May 2023