Updated guidance on mutual agreement procedure and arbitration

On 5 May 2022, the Austrian Federal Ministry of Finance (“BMF”) published new guidance on mutual agreement procedure (“MAP”) and arbitration procedure (BMF – IV/8, Geschäftszahl 2022-0.300.851). The guidance replaces a BMF guidance from the year 2019 and provides an overview of the formal and material requirements for these procedures in Austria.

Structure of the guidance

The guidance has four sections:

  • Section A: General points on international MAP and arbitration
  • Section B: MAP
  • Section C: Arbitration
  • Section D: Advance Pricing Agreements

In addition, the guidance contains the following attachments for further reference:

  • Special provisions of Austrian double tax treaties (“DTTs”) in connection with MAP (version as of 1 January 2022)
  • Bilaterally agreed arbitration clauses in Austrian DTTs

Main changes – MLI and EU Tax Dispute Resolution Act

The main changes derive from the implementation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (“MLI”) and the Austrian EU Tax Dispute Resolution Act (“EU-BStbG”).

The MLI implements the Base Erosion and Profit Shifting (“BEPS”) Action Plans of the OECD within the DTTs of participating states. The BEPS Action Plans contain, among other aspects, recommendations for the improvement of dispute resolution, which were incorporated into the MLI. Austria has ratified the MLI, which has applied to selected Austrian DTTs since 2019. Currently, the MLI modifies 38 Austrian DTTs. In the guidance, the BMF describes how the measures of part V (Improving Dispute Resolution) and part VI (Arbitration) of the MLI will affect the Austrian DTTs and how they should be applied in practice.

The EU-BStbG transposes the provisions of the Council Directive on tax dispute resolution mechanisms in the European Union into Austrian law. It creates an alternative means of resolving tax disputes to the procedures under DTTs, the MLI, or the EU Arbitration Convention. The EU-BStbG sets out rules of procedure for conducting MAPs within the EU, which fall under the scope of a DTT or the EU Arbitration Convention. The EU-BStbG applies to assessment periods beginning on or after 1 January 2018.

Goal of dispute resolution procedures

DTTs are intended to prevent the risk of double taxation. In certain cases, however, this goal is not achieved due to tax disputes between contracting states.

Such disputes arise, in particular, if:

    • contracting states interpret the same facts differently and thus apply different apportionment rules
    • contracting states hold different legal opinions concerning the interpretation of apportionment rules.

To solve tax disputes of this kind between states, DTTs, the MLI, the EU Arbitration Convention, and the EU-BStbG all contain provisions in the form of international MAP and arbitration.

MAP and arbitration

All means of dispute resolution described in the guidance (DTT, MLI, EU Arbitration Convention, EU-BStbG) envisage a two-phase procedure: a MAP and, if necessary, a subsequent arbitration.

The design of the MAP and arbitration is different and therefore, the guidance contains details for each means of dispute resolution.

In section B, the guidance covers in particular the following aspects of a MAP:

    • Requesting the procedure
    • Reviewing the request and initiating the procedure
    • Requesting potential tax relief for the duration of the procedure
    • Conduct of MAP and position of the person covered under the DTT
    • Conclusion of the procedure and implementation of the mutual agreement

Section C contains information regarding the conduct of an arbitration procedure, and covers the following points in particular:

    • Initiation of an arbitration procedure
    • Relationship to legal remedies at domestic/national level
    • Conduct of the arbitration procedure
    • Conclusion of the arbitration procedure and implementation of the result

Compared to other instruments, the EU-BStbG contains comprehensive procedural regulations. The EU-BStbG also offers the complainant various courses of action under treaty law in relation to the competent authorities, e.g., in the event of non-observance of deadlines. Large parts of the guidance thus concern procedures in accordance with the EU-BStbG.

Advance Pricing Agreements

In addition to information on mutual agreement and arbitration procedures, the guidance also contains details on advance pricing agreements (“APAs”). APAs are generally concluded prior to the realization of the controlled transactions with the goal of avoiding the risk of double taxation.

In general, a distinction is made between unilateral APAs and bilateral or multilateral APAs. Under the OECD Transfer Pricing Guidelines, unilateral APAs are agreements concluded between one or more taxpayer(s) and a tax authority. Bilateral or multilateral APAs, by contrast, are concluded between one or more taxpayer(s) and the tax authorities of two or more jurisdictions (according to a relevant DTT). They are negotiated according to the principles of bilateral or multilateral MAPs. This means that they can only be implemented with Austria’s DTT contracting states, and the prerequisites for the applicability of the respective DTT and the arbitration clause must be fulfilled.

Unilateral APAs have been implemented via the provisions of Section 118 Austrian Federal Fiscal Code (BAO), the so-called advance ruling or “Auskunftsbescheid”. As many rules already govern advance rulings, the guidance covers bilateral and multilateral APAs in particular.

The guidance envisages an informal discussion (prefiling meeting) prior to formal initiation of an APA. The prefiling meeting is intended to offer the taxpayer the opportunity to discuss, together with the competent authority, readiness to implement an APA, the suitability of an APA in the specific case, the nature and scope of the available documentation, as well as a rough schedule.

For bilateral APAs, a request must be submitted by the taxpayer. The guidance contains details on the form of the request and lists the documents required. Whether the request is granted is at the discretion of the authority.

In addition to a description of the facts and the assessment of the content, an APA also contains critical assumptions and reporting obligations.

Prior to conclusion of an APA, the taxpayer will receive a statement of the agreement reached from the authorities. If the taxpayer agrees, the APA will become binding for the competent authorities.

Beyond the APA, there is also the option of a ‘roll-back’, i.e., extending the solution obtained through the APA for periods prior to the APA by means of a MAP.

Conclusion and outlook

The growing number of MAPs indicates that taxpayers are increasingly confronted with (the risk of) double taxation. It may be assumed that the new guidance on MAP and arbitration will therefore be highly relevant in practice.

 

Authors: Sandra Staudacher, Karol Dziwiński

FB twitter Linkedin
Tags

Categories