United Kingdom

  1. In your jurisdiction, what are the legal bases for eliminating double taxation further to a transfer pricing reassessment (European Arbitration Convention, mutual agreement procedures provided for by tax treaties)? In addition to the procedures set forth by such tax treaties, is there any other (formal or informal) domestic procedure in your jurisdiction?
  2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?
  3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?
  4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?
  5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 1 The terms "international procedure to eliminate double taxation" mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty.  (your State? the other State concerned? both States?)
  6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?
  7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?
  8. Is tax collection suspended during the procedure?
  9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?
  10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

As the UK is a member of the OECD, UK taxpayers may invoke Mutual Agreement Procedures (hereinafter “MAP”) described under Article 25 of the OECD Model Tax Convention (hereinafter “OECD-MTC”). The terms of the OECD-MTC are generally adopted under the relevant tax treaty where the other signatory is agreeable. The European Union (hereinafter “EU”) ‘Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises’ 90/463/EEC (hereinafter the “European Arbitration Convention”) may provide an alternative to the MAP procedure under the UK’s tax treaties where residents of EU Member States are potentially subject to double taxation. MAP may be invoked under the UK’s tax treaties, under the European Arbitration Convention, or under both simultaneously.

On considering a MAP case, the UK Competent Authority may conclude that the taxation of relevant transactions proposed or applied by a tax treaty partner is in accordance with the tax treaty and may grant relief on a unilateral basis at this point, even if the treaty partner is unwilling or unable to enter MAP.

2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?

The UK has tax treaties with over 100 countries, about thirteen of which now contain a provision for arbitration. HMRC is generally prepared to consider requests for reference of a case to arbitration unless the relevant tax treaty prevents it.

3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?

Statistics released by Her Majesty’s Revenue and Customs (hereinafter “HMRC”) covering the period 2009 – 2014 indicate that the average time to resolve MAP cases is 20 – 29 months, with 50% of cases resolved within approximately 20 months.

4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?

MAP cases must be presented before the expiration of:

  • The period of six years following the end of the tax year to which the case relates; or
  • Such longer period as may be specified in the tax treaty for claims after 27 July 2000

The starting point for the time limit depends on the specific terms of the particular UK tax treaty under which the MAP is invoked. For older treaties the time period is not addressed, so that the domestic limit of 6 years following the end of the tax year to which the case relates applies. In each case the relevant tax treaty should be consulted.

Taxpayers are generally invited to follow the normal transfer pricing enquiry process before invoking MAP, and to informally discuss double taxation issues prior to the MAP process being formally initiated. Therefore, in practice, MAP does not provide a parallel avenue to the domestic appeals process. It should be noted that the UK taxpayer is not a formal party to the MAP consultation process, but is invited to participate informally at the discretion of HMRC.

5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 1 The terms "international procedure to eliminate double taxation" mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty.  (your State? the other State concerned? both States?)

The European Arbitration Convention requires that at the same time an enterprise presents a case to the Competent Authority of the state of which it is resident or in which it has a permanent establishment, it must at the same time notify the Competent Authority of any other states which may be concerned in the case. As a matter of good practice HMRC advises that a presentation of a case should also be copied to the Competent Authority of the other state in a MAP case, even if it is outside the European Arbitration Convention.

6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?

In the UK domestic legislation, there is no set form of presentation of a MAP case.

For cases initiated in the framework of the European Arbitration Convention, taxpayers should follow the guidelines provided by this treaty. Furthermore, specific treaties may state that certain information must be provided before it is accepted that a case has been presented for the purposes of starting the period after which arbitration may be invoked. It is therefore advisable to consult the relevant treaty and public guidance on the matter provided by the UK’s treaty partner when presenting a case to that partner.

UK taxpayers may present their cases in writing to the HMRC parties listed in State of Practice 1 (2011) and International Manual INTM153270. A presentation should specify the year(s) concerned, the nature of the action giving rise, or expected to give rise, to taxation not in accordance with the convention, and the full names and addresses of the parties to which the MAP relates, including the UK enterprise’s HMRC office and reference number.

7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?

HMRC follows the European Arbitration Convention. Article 8 of the Arbitration Convention provides that the competent authority of a Contracting State is not obliged to initiate either of the two stages, MAP or advisory commission, where one of the enterprises involved is liable to a serious penalty. The UK has declared that it will interpret the term ‘serious penalty’ as comprising criminal sanctions and administrative sanctions in respect of the deliberate or careless delivery of incorrect accounts, claims or returns for tax purposes.

HMRC will, in practice, only exercise its discretion under Article 8 in cases involving the imposition of penalties for deliberate inaccuracy. In considering whether to proceed under the Arbitration Convention the UK will take into account the facts and circumstances which have led to the taxpayer becoming liable to such a sanction.

There is no provision equivalent to Article 8 of the Arbitration Convention affecting MAP or arbitration in the OECD Model on which the UK seeks to base its tax treaties.

8. Is tax collection suspended during the procedure?

Tax collection is not suspended during the MAP procedure.

9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?

The manner in which relief is granted by the UK depends on the facts and circumstances of the particular case. Relief may be granted either by deduction against UK profits or by tax credit. Following agreement between the Competent Authorities, the UK taxpayer will usually be invited to submit revised computations reflecting the agreed relief.

The UK does not accept that it is permissible for a taxpayer to make, unilaterally, an adjustment through its accounts and tax return to obtain corresponding relief for an adjustment which reduces its UK tax liability either when self-assessing or in response to an adjustment imposed by another jurisdiction. The only avenue to relief is presentation of a case involving MAP.

10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

The UK follows the approach described in the Commentary on Article 25 at Paragraph 76, where a person cannot simultaneously pursue a MAP and domestic legal remedies. Thus a case may be presented and accepted for MAP while the domestic remedies are still available. In such cases the UK Competent Authority will generally require that the taxpayer agrees to the suspension of these legal remedies or, if the taxpayer does not agree, will delay the MAP until these domestic remedies are exhausted. Where the adjustment giving rise to MAP has been made in the other state, the UK Competent Authority does recognise that whilst a taxpayer may be willing to suspend domestic legal remedies, the other fiscal authority may be unwilling to do so. Similarly, the UK Competent Authority may recognise that pursuit of domestic legal remedies in another state may take a considerable amount of time, and in such cases the UK Competent Authority may be willing to continue the MAP while the domestic legal process continues.

Authors

Anna Burchner
Anna Burchner