On February 1, 2023, the OECD Forum on Tax Administration published its Manual on the Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Arrangements. (“Multilateral MAP and APA Manual” or the “Manual”). The Multilateral MAP and APA Manual provides new guidance to both tax administrations and taxpayers on how both multilateral MAPs and APAs can be negotiated and implemented under existing bilateral tax treaties in circumstances where a double tax issue cannot be adequately resolved without involving one or more third jurisdictions. The Multilateral MAP and APA Manual is similar in some ways to the Bilateral Advance Pricing Arrangement Manual (“Bilateral APA Manual”) that the OECD published in September 2022, which was the subject of a prior blog post. However, whereas the Bilateral APA provided specific, detailed, best practices to tax administrations and taxpayers reflecting decades of experience within a well-established process, the Multilateral MAP and APA Manual aims to provide a more basic awareness of how multilateral MAPs and APAs can be negotiated and implemented in appropriate cases.
The Manual is divided into sections that (i) address the basis for multilateral MAP and APA cases, (ii) explain procedural aspects, (iii) provide examples of multilateral cases, and (iv) set forth an ideal timeframe for multilateral cases.
Basis for Multilateral Cases
As an important threshold matter, the Manual explains how multilateral MAP and APA processes already have a sound legal basis under existing bilateral treaties with a MAP article based on Article 25 of the OECD Model Income Tax Convention (the “Convention”). Specifically, the Manual explains that multilateral procedures are possible based on either Article 25(1) of the Convention, which is the basic provision allowing taxpayers to present cases giving rise to taxation contrary to the Convention to one or both competent authorities within the stated time limitation, and Article 25(3), which allows the competent authorities broad discretion “to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention,” and to “consult together for the elimination of double taxation in cases not provided for in the Convention.” While the text of Article 25(1) and 25(3) is silent on the possibility of multilateral cases, the current Commentary supports multilateral cases pursuant to the authority granted by either paragraph. Further, while the Manual notes that there is a consensus among jurisdictions that Article 25(3) provides the legal basis for multilateral APAs, it notes that different jurisdictions invoke both Articles 25(1) and Article 25(3) as their basis for multilateral MAPs.
While the Article 25(1) and Article 25(3) approaches to a multilateral MAP should produce similar end results, the Manual notes that they may have different procedural implications that tax administrations and taxpayers should keep in mind. For instance, the Article 25(1) approach would generally require the taxpayer to file MAP requests with the relevant competent authorities under each applicable treaty (which could mean filing three or more requests), whereas under the Article 25(3) approach, the Taxpayer would file a MAP request under one treaty and the competent authorities would then exercise their own discretion to bring one or more additional jurisdictions into the process. Further, while the Article 25(1) approach should provide the taxpayer the benefit of being able to implement the MAP resolution even if domestic statutes of limitations are closed, provided that the case is presented in within the applicable timeframe (assuming the MAP article of the applicable treaty provides this benefit generally), this benefit may not be afforded to a taxpayer pursuing a multilateral MAP where one or more of the tax administrations applies the Article 25(3) approach. Given these critical differences, taxpayers contemplating a multilateral MAP should confirm and align with the relevant competent authorities on the applicable approach and expectations in each jurisdiction before filing the request.
The Manual provides guidance to tax administrations and taxpayers on various procedural aspects of multilateral cases, including the mechanics of multilateral cases, coordination, interaction with domestic remedies, implementation, arbitration and the rights, obligations and role of the taxpayer. The Manual explains that mechanically, a multilateral MAP or APA can be truly multilateral (“Multilateral Approach”) in which three or more competent authorities would come to the table at the same time to negotiate a single mutual agreement, or alternatively, can be accomplished through two or more bilateral agreements coordinated in a way to achieve a consistent result (“Bilateral Approach”). While the Manual notes that the Multilateral Approach is usually preferable to the Bilateral Approach, historically the Multilateral Approach has been challenging because of logistical difficulties associated with scheduling in-person meetings among three or more governments. Under either approach, the Manual recommends that the process be coordinated through an agreed project plan and the appointment of a “coordinating competent authority” to facilitate discussion and agreement among the three or more governments involved. The Manual further recommends extending (as appropriately modified) certain key taxpayer favorable procedural aspects of bilateral MAP processes to multilateral cases, including broad access to MAP notwithstanding available domestic proceedings, prompt implementation irrespective of domestic time limits, and the availability of arbitration to resolve certain unresolved cases.
The Manual also describes taxpayer obligations in multilateral cases. It explains that as an initial matter, taxpayers are expected to identify a multilateral case at the outset, contact the jurisdictions involved to start the process, and provide the necessary information to facilitate a multilateral resolution. It also explains that the taxpayer should maintain a central contact person to interact with the coordinating competent authority and other competent authorities.
The Manual provides simplified examples of transactions that would likely benefit from a multilateral solution. These include (i) a multinational enterprise that uses inputs of semi-finalized products from a jurisdiction that is different from the one the products are finished in before the ultimate sale of the finished product to customers in a third, (ii) the use of a “super-distributor” hub in a jurisdiction separate from the parent company for distribution to an entire geographic region; and (iii) a multinational enterprise that provides intragroup services of the same nature to enterprises located in different geographic regions. While these examples reflect typical circumstances in which a multilateral MAP or APA may be appropriate, they are certainly by no means exhaustive of the many types of transactions and fact patterns for which such a multilateral solution may be appropriate.
The Manual also provides a timeline for typical multilateral cases. It suggests that it should take about 36 months from the receipt of a either a multilateral APA or MAP request until mutual agreement between the competent authorities is reached. This is an ambitious timeframe only six months longer than the 30-month timeframe that the Bilateral APA Manual set as the initial objective for concluding bilateral APAs, and 12 months longer than the current BEPS Action 14 commitment to resolve bilateral MAPs within an average of 24 months.
Analysis and Takeaways
The Multilateral MAP and APA Manual provides timely guidance to tax administrations and taxpayers on multilateral procedures that are often needed to fully resolve or prevent transfer pricing disputes impacting complex, multi-jurisdiction transactions on terms that achieve tax certainty and avoid double taxation.
Such disputes requiring multilateral attention are only expected to become more commonplace as multinational enterprises’ modern value chains become more globally integrated and more tax administrations continue to step-up their enforcement efforts. Further, multilateral MAPs and APAs are likely to become more commonplace as wider acceptance of virtual meetings and electronic communications by tax administrations have reduced reliance on in-person multilateral negotiations which historically have been logistically difficult to schedule.
This trend is reflected in statistics from the 2021 APMA Statutory Report (Mar. 22, 2022). Multilateral APAs are a relatively small portion of the total amount of APAs that have been executed since the program began in 1991—21 out of 2,191. But as of the end of 2021 there are more pending multilateral APA requests—27—than have been executed in the 30 years since the program’s inception.
While neither multilateral MAP nor APA processes are new, in the United States and most other jurisdictions, there has been little detailed guidance on multilateral as distinct from bilateral processes. As a result, multilateral MAP and APA processes have not always been well understood or consistently applied globally, and likely have been under-utilized as a result. The Manual addresses this guidance gap in a way that is both practical and actionable, by detailing how multilateral processes can be (and already are being) pursued within the context of existing bilateral treaty networks.
Further, taxpayers should be mindful of the similarities and differences between multilateral MAPs and APAs and another multilateral process that we have previously written about: the International Compliance Assurance Program (“ICAP”). ICAP is a process that is similar to a multilateral APA in that it is intended for multiple tax jurisdictions to review and risk assess an MNE group’s transfer pricing allocations with a view toward avoiding future audits and disputes. However, ICAP is unlike a multilateral APA because its conclusions are not legally binding on tax administrations. Nevertheless, the nature of ICAP’s program is still useful to taxpayers under certain circumstances, such as when a binding multilateral APA is unavailable or impractical due to the number of relevant tax administrations involved.
Finally, the Manual’s guidance is also timely and relevant in light of the IRS’s current project to revise both the current MAP and APA revenue procedures. The current US MAP revenue procedure, Rev. Proc. 2015-40, does not specifically address or even mention multilateral MAPs, while the APA revenue procedure, Rev. Proc. 2015-41, expressly allows for multilateral APAs but does not provide detailed, specialized guidance for multilateral as distinct from bilateral processes. While it is not yet known whether and to what extent the new revenue procedures will provide enhanced guidance on multilateral processes, it is reasonable to speculate that any such new guidance will be fully consistent with the Manual given the United States’ active participation in the OECD’s Forum on Tax Administration and the broad base of international consensus that the Manual reflects.
 A Taxpayer’s presentation of a MAP request under Article 25(2) in turn triggers the obligation of the competent authorities under Article 25(2) to endeavor to resolve the case by mutual agreement, if a unilateral solution cannot be reached.
 While not formally a “consensus” document, the Manual indicates that it was approved by the 135+ member OECD Inclusive Framework on BEPS and each country of the over 50 members of the OECD Forum on Tax Administration.