Pillar One - Amount B

8. Tax certainty and elimination of double taxation

1. Where a tax administration makes a primary adjustment resulting in double taxation of the profits derived from the relevant qualifying transaction, a corresponding adjustment can mitigate or eliminate double taxation by adjusting downwards the tax liability of the associated enterprise in a second tax jurisdiction. Some jurisdictions may be able to remedy economic double taxation through unilateral corresponding adjustments making use of provisions in their domestic laws.1 However, most jurisdictions would only be able to consider corresponding adjustments as part of a Mutual Agreement Procedure.2

2. Taxpayers, on filing for a Mutual Agreement Procedure, where one or more of the jurisdictions relevant to the Mutual Agreement Procedure has not chosen to apply or accept the simplified and streamlined approach, should base any justification of their position3 only on the remainder of these Guidelines.4 In a Mutual Agreement Procedure or resulting arbitration procedure, where one or more of the jurisdictions relevant to the Mutual Agreement Procedure has not chosen to apply or accept the simplified and streamlined approach, then the competent authorities of both jurisdictions engaged in that Mutual Agreement Procedure must justify their positions based only on the remainder of these Guidelines. Specifically in such cases, the simplified and streamlined approach under this guidance must not be considered or referenced by the relevant competent authorities as an approach which is treated as leading to an acceptable outcome.5 This includes for the purposes of conducting the Mutual Agreement Procedure, as a basis of a resolution of the Mutual Agreement Procedure, or by any party (including arbitrators) in the conduct of any arbitration procedure.6

3. This general principle is illustrated below, considering two potential sources of double taxation. These scenarios should not be considered as being exhaustive, and instead should be considered as an attempt to illustrate the process by which such double taxation may be relieved.

4. One potential source of double taxation could occur where the simplified and streamlined approach has been applied by a taxpayer to price an in-scope transaction in a jurisdiction that has chosen to apply the approach, and a primary adjustment is made by the counterparty jurisdiction based on the remainder of these Guidelines.

5. To remedy any resulting double taxation, a request for a corresponding adjustment should be analysed under paragraph 2 of Article 9. Since the primary adjustment is made by a jurisdiction based on the remainder of the Guidelines, this request could be made to the jurisdiction where the simplified and streamlined approach applies.7 In such a case, to the extent the primary adjustment can be substantiated under the remainder of these Guidelines,8 the competent authority of the jurisdiction where the simplified and streamlined approach applies shall provide relief from double taxation by making a corresponding adjustment.

6. If relief from double taxation cannot be achieved in that manner under paragraph 2 of Article 9,9 this may lead to a Mutual Agreement Procedure. In these cases, taxpayers engaged in a Mutual Agreement Procedure should support their position only based on the remainder of these Guidelines.

7. In such cases, where one of the jurisdictions in the Mutual Agreement Procedure is a jurisdiction that has chosen not to apply the simplified and streamlined approach, the simplified and streamlined approach under this guidance should not be considered or referenced by the competent authorities as an approach which leads to a result which is treated as an acceptable outcome for purposes of the Mutual Agreement Procedure or any arbitration procedure.10 This includes for the purposes of conducting the Mutual Agreement Procedure, as a basis of a resolution of the Mutual Agreement Procedure, or by any party (including arbitrators) in the conduct of any arbitration procedure. In such situations the competent authority of the tax administration originally applying or accepting the application of the simplified and streamlined approach must justify its position in the Mutual Agreement Procedure and any resulting arbitration procedure based on the remainder of these Guidelines.

8. Another potential source of double taxation could occur where the simplified and streamlined approach is applied under the second option discussed in paragraph 7 and a primary adjustment is made by a tax administration to ensure that taxation is levied in accordance with the outcome of applying the simplified and streamlined approach. In such cases a request for relief from double taxation may be made to the counterparty jurisdiction under a Mutual Agreement Procedure. The relevant competent authorities should note the guidance in paragraphs 4.117 and 4.131 of these Guidelines in attempting to relieve double taxation. Where the counterparty jurisdiction has not agreed to apply the simplified and streamlined approach in a competent authority agreement with the jurisdiction making the adjustment, or to apply it specifically to resolve double taxation in the case under consideration,11 the competent authority of the jurisdiction where the adjustment was made must substantiate its position based on the remainder of these Guidelines in any Mutual Agreement Procedure or resulting arbitration, noting the general principles articulated in paragraph 72 above.

9. Whether or not it applies the simplified and streamlined approach, a jurisdiction may provide a corresponding adjustment that reflects the outcome of the simplified and streamlined approach on a case-by-case basis if it considers that it produces an acceptable outcome in a specific case.12 Jurisdictions may also choose to enter into competent authority agreements with other jurisdictions to provide corresponding adjustments according to the result determined by applying the simplified and streamlined approach. It is recommended that in such an agreement, the jurisdiction considering the corresponding adjustment has the ability to verify whether the qualifying transaction meets the conditions to apply the approach and whether the approach has been applied correctly in determining the amount of the primary adjustment.13

10. For the avoidance of doubt, for any agreement reached under Article 25 of the Model Tax Convention (including bilateral or multilateral APA cases as well as Mutual Agreement Procedure cases)14 obtained prior to the implementation of the simplified and streamlined approach, the terms and conditions of such agreements would continue to be valid in relation to the covered qualifying transactions. This approach respects legally binding agreements and avoids uncertainty as to whether disputes already settled between competent authorities may be subject to review and reassessment and enhances predictability for concerned taxpayers.

Notes

← 1.  See Commentary to Article 25, para. 12.

← 2.  See paragraph 4.32 of these Guidelines.

← 3.  This specifically refers to situations where a taxpayer should present a position to a competent authority when filing for a Mutual Agreement Procedure or chooses to present such a position and is not to suggest that a taxpayer is obligated to present a position in order to access a Mutual Agreement Procedure. In other words, a taxpayer that does not justify its position only on the remainder of the Guidelines still has access to a Mutual Agreement Procedure.

← 4.  If there is a competent authority agreement that calls for application of the simplified and streamlined approach, or if the jurisdictions of both parties that take part in the transaction elect to apply the simplified and streamlined approach in the relevant case, then the competent authorities will rely on the simplified and streamlined approach. In such circumstances, taxpayers can also rely on such approach.  If there is no such competent authority agreement, and if the competent authorities have not otherwise agreed to apply the simplified and streamlined approach in the relevant case, then, in the event that the taxpayer presents a position, it should be based on the remainder of these Guidelines.

← 5.  See footnote 54.

← 6.  Note that the same principles apply to unilateral corresponding adjustments described in paragraph 71, which are provided under the domestic law of the jurisdictions where such procedures are legally permissible, based on the domestic law of such jurisdictions.

← 7.  Depending on the applicable tax treaty, a taxpayer may be required to file for the Mutual Agreement Procedure in its jurisdiction of residence.

← 8.  See paragraph 6 of the commentary to Article 9(2) of the Model Tax Convention.

← 9.  Equally considering the same commentary in paragraph 6 of Article 9(2) of the Model Tax Convention.

← 10.  However, the outcome of applying the simplified and streamlined approach may in some cases be consistent with the outcome of applying the remainder of these Guidelines.

← 11.  See paragraph 79.

← 12.  If the jurisdictions of both parties that take part in the transaction elect to apply the simplified and streamlined approach, these jurisdictions would be expected to accept the outcome determined by applying the simplified and streamlined approach to the in-scope transaction and provide reciprocal corresponding adjustments or accept the result as an outcome in a Mutual Agreement Procedure accordingly.

← 13.  See guidance in paragraphs 5 and 6 of the Commentary on Article 9 and Section C.2 of Chapter IV of these Guidelines.

← 14.  In the case of unilateral APAs reached prior to the adoption of the streamlined and simplified approach, this approach respects legally binding agreements between a jurisdiction and a taxpayer but recognises that there could be changes to such an APA in a bilateral Mutual Agreement Procedure. See further paragraph 4.140 of these Guidelines, and in general Section F of Chapter IV of these Guidelines.