Mutual Agreement Procedure Meaning
An application under the European Arbitration Agreement must contain the information and documents necessary for the procedure and be forwarded to the BZSt in three copies. Action 14 of the BEPS Action Plan is aimed in particular at improving the effectiveness of the Mutual Agreement Procedure (POP) in resolving contract and transfer pricing disputes. Where measures taken by one or more countries lead to non-DBA taxation (particularly in the area of double taxation), the taxpayer concerned may request a procedure of mutual agreement. In Germany, the Bundeszentralamt for Steuern (BZSt) is responsible for the implementation of these procedures. If all the conditions are met, the countries concerned try to resolve the tax dispute by mutual agreement. This will generally avoid double taxation. With respect to transfer pricing disputes, taxpayers can use a POP to resolve the potential double taxation resulting from a transfer pricing adjustment initiated by a country. Tax payers facing a transfer price adjustment can go to their country of residence to resolve any double taxation problems that may result from this transfer price adjustment. First, under the new rules of the OECD multilateral agreement, the country of residence should consider appropriate accommodation if it believes that adaptation is compatible with the principle of arm length.
If the resident country does not accept an adjustment to this effect, it can use MAP to solve this problem of double taxation in agreement with the other country. In addition, it is important to consider the impact of a national transaction agreement on the possibility of obtaining double taxation relief in the POP process at a later date. The internal resolution of disputes related to cross-border transactions may, in practice, limit the ability of the competent authority, on the other side of operations, to grant facilities for double taxation. This is mainly due to the fact that such comparisons restrict the negotiations of the competent authorities: the position agreed by the taxpayer with one tax authority may not be acceptable to others. For U.S.-based taxpayers, for example, a national comparison without POPs can be particularly damaging, as taxpayers must prove that they have exhausted all effective and practical remedies to challenge their taxes or that their foreign tax credits are being denied by U.S. tax authorities. For more information on applying for a POP and exceptions for individuals, see Chapter 3.4 of the Tax Administration Guidelines on the Procedure for Mutual Agreement in the Case of International Tax Disputes. The procedure of mutual unification may apply in situations where double taxation must be abolished.