The main focus of the OECD and the FTA for tax certainty is the promotion of Bilateral and Multilateral approaches that provide substantially more tax certainty to MNE Groups than traditional unilateral approaches. Bilateral and Multilateral approaches not only minimize the potential for tax disputes and double taxation through fostering collaboration between tax administrations of countries. By engaging in dialogue and discussion, jurisdictions can address double taxation issues more effectively, whilst promoting consistency and reducing the risk of divergent outcomes that unilateral approaches may yield. This collaborative approach enhances transparency, minimizes disputes, and contributes to a more stable and predictable international tax environment.

Tax administrations and taxpayers have a number of Bilateral and Multilateral dispute prevention and dispute resolution tools available to them. These are:

• Mutual Agreement Procedure 

• Bilateral and Multilateral Advance Pricing Arrangements 

• The International Compliance Assurance Programme 

• Joint Audits

• Country-by-Country Reporting

Each tool aims to prevent or resolve tax disputes in its own unique way and allow for a tailored approach for tax administrations and taxpayers in managing tax risks in the most efficient and effective way. 

By preventing tax disputes from arising in the first place, both taxpayers and tax administrations save time, effort, and resources. Dispute resolution processes can be lengthy, complex, expensive and resource intensive for taxpayers, tax administration and legal systems. Whereas prevention reduces the need for such procedures while providing greater legal certainty to taxpayers allowing them to concentrate on their business objectives with confidence. Prevention encourages collaboration between taxpayers and tax administrations, and by working together to understand tax obligations and compliance requirements, all parties can minimise misunderstandings and potential conflicts, saving resources and improving the efficiency of the administration of tax regimes. 

Bilateral and Multilateral Advance Pricing Arrangements (“APAs”) are binding arrangements between two or more tax administrations and the taxpayers in relation to a specific issue for a prescribed period. In a growing number of cases, these collaborative APAs have successfully contributed to providing advance tax certainty to both taxpayers and tax administrations, ensuring predictability in the tax treatment of international transactions and reducing potential tax disputes. 

In continuing with its commitment to advancing the tax certainty agenda, the FTA MAP Forum, in conjunction with the FTA Large Business International Programme, has developed the Bilateral Advance Pricing Arrangement Manual (“BAPAM’) which is intended as a guide for streamlining the BAPA process for jurisdictions and taxpayers to facilitate a cooperative and collaborative process. Further, the FTA MAP Forum has developed the Manual on the Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Arrangements (“MoMA”), which offers guidance to tax administrations and taxpayers on Multilateral APAs from both legal and procedural perspectives.

ICAP is a voluntary risk assessment and assurance programme to facilitate open and co-operative multilateral engagements between MNE groups willing to engage actively and transparently and tax administrations in jurisdictions where they have activities.

By coordinating conversations between an MNE group and multiple tax administrations, ICAP supports the effective use of transfer pricing documentation, including the MNE group’s Country-by-Country report, providing a faster, clearer and more efficient route to improved multilateral tax certainty. ICAP should reduce the resource burden on both MNE groups and tax administrations, meaning fewer disputes requiring resolution through mutual agreement proceedings. Where an area is identified as needing further attention, work conducted in ICAP can improve the efficiency of compliance action taken outside the programme, if needed.

Joint Audits involves two or more tax administrations collaborating to examine an issue or transaction related to one or more taxable persons (both legal entities and individuals) engaged in cross-border business activities. These audits may include cross-border transactions involving related affiliated companies organized in participating jurisdictions and are an essential element in the Tax Certainty Agenda,  allowing tax administrations to operate efficiently and effectively in an increasingly global environment, co-operating ever more closely and frequently with each other to ensure compliance, tackle base erosion and profit shifting, and minimise the probability of costly and time-consuming disputes.

The lack of quality data on corporate taxation has been a major limitation to measuring the fiscal and economic effects of tax avoidance, making it difficult for tax administrations to carry out transfer pricing assessments on transactions between linked companies and even more difficult to carry out audits.

Under BEPS Action 13, all large multinational enterprises (MNEs) are required to prepare a country-by-country (CbC) report with aggregate data on the global allocation of income, profit, taxes paid and economic activity among tax jurisdictions in which it operates. This CbC report is shared with tax administrations in these jurisdictions, for use in high level transfer pricing and BEPS risk assessments.