Transfer Pricing Insider
Volume 2, Issue 3
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Making Better Use of APA and MAP Programs
Source: WG&L Journal of International Taxation
By not taking frequent action, the company may expose itself to difficult debates with respect to financial accounting, issues of formal tax laws (notably, burden of proof), and deadlines for MAPs. Therefore, a shortage of internal resources may backfire in the long run.
With fiscal deficits at record levels in major countries, governments face tremendous pressure to enforce tax laws and maximize their tax revenue. Governments are cooperating internationally to exchange information about taxpayers, and multinational corporations (MNCs) are subject to simultaneous tax audits. Tax conflicts relating to the development and use of technology and marketing intangibles also exist between developed and emerging countries. As a result, MNCs are facing a daunting array of rules concerning documentation of transactions, disclosure of financial information, transparency of tax issues, analyses of tax reserves, and reasoned conclusions regarding tax exposures. These global forces are leading to a dramatic increase in tax audits, disputes, and tax adjustments around the world. At the same time, there are significant competitive pressures on MNCs to operate efficiently and to produce a competitive global effective tax rate.
The world needs efficient mechanisms to enhance and secure international economic relationships, thereby leading to more certainty in an uncertain environment. The importance of abolishing double taxation is obvious in this context. Advance pricing agreements (APA s), mutual agreement procedures (MAPs) between competent authorities, and arbitration procedures serve this goal.
This article analyzes how taxpayers and governments can improve the use of these international or supra-national procedures to resolve disputes. It describes what conflict theory has to add to the problem of international tax conflicts, and it looks into developments in international institutions and countries influencing global opinion. Finally, it addresses how taxpayers and governments can enhance the current dispute resolution mechanisms.
Conflict Theory
Conflict theory suggests that the basic elements in any dispute are power, rights, and interests. When it comes to power as a method for resolving tax disputes, the relationship between a taxpayer and the tax administration is asymmetrical. The former holds most of the information while the latter can avail itself of the wide formal powers under tax laws. This imbalance results in different perceptions of respective powers. Determining who is more powerful is an inefficient tool in resolving tax disputes because each side’s perception of the power balance may result in investments in unwarranted additional resources.
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