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16 March 2018 OECD releases Spain peer review report on implementation of Action 14 minimum standard On 12 March 2018, the Organisation for Economic Co-operation and Development (OECD) released the third batch of peer review reports relating to the implementation of the Base Erosion and Profit Shifting (BEPS) minimum standard under Action 14 on improving tax dispute resolution mechanisms.1 Spain was among the assessed jurisdictions in the third batch.2 Overall the report concludes that Spain meets most of the elements of the Action 14 minimum standard. In the next stage of the peer review process, Spain's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14 on Making Dispute Resolution Mechanisms More Effective.3 The Terms of Reference translated the Action 14 minimum standard into 21 elements and the best practices into 12 items. The Assessment Methodology provided procedures for undertaking a peer review and monitoring in two stages. In Stage 1, a review is conducted of how a BEPS member implements the minimum standard based on its legal framework for Mutual Agreement Procedure (MAP) and how it applies the framework in practice. In Stage 2, a review is conducted of the measures the BEPS member takes to address any shortcomings identified in Stage 1 of the peer review. Both of these stages are desk-based and are coordinated by the Secretariat of the Forum on Tax Administration's (FTA) MAP Forum. In summary, Stage 1 consist of three steps or phases: Input is provided through questionnaires completed by the assessed jurisdiction, peers (i.e., other members of the FTA MAP Forum) and taxpayers. Once the input has been gathered, the Secretariat prepares a draft Stage 1 peer review report of the assessed jurisdiction and sends it to the assessed jurisdiction for its written comments on the draft report. When a peer review report is finalized, it is sent for approval of the FTA MAP Forum and later to the OECD Committee on Fiscal Affairs' to adopt the report for publication. The report includes 21 recommendations relating to the minimum standard, however some of them indicate that Spain should continue with the same approach. In general, the performance of Spain with regard to MAP has proven to be satisfactory in their respective reports. Overall, Spain meets most of the elements of the Action 14 minimum standard. Pursuant to this provision, jurisdictions should ensure that their tax treaties contain a provision which requires the competent authority of their jurisdiction to endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of their tax treaties. Out of Spain's 92 tax treaties, 90 contain a provision equivalent to Article 25 (3), first sentence, of the OECD Model Tax Convention requiring their competent authority to endeavor to resolve by MAP any difficulties or doubts arising as to the interpretation and application of the tax treaty. In the remaining two tax treaties4 the term "interpretation" is not included. Since the Article that relates to preventing disputes of these two tax treaties will not be modified via the Multilateral Instrument (MLI), the recommendation is that the required provision is amended via bilateral negotiations. Further, the recommendation is that Spain should maintain its stated intention to include the equipment provision in all future treaties. Since the possibility of requesting roll-back of bilateral APAs is already foreseen in Spanish domestic legislation, the recommendation in this area is to continue providing for roll-back of bilateral APAs. Pursuant to this provision, jurisdictions should ensure that their tax treaties contain a MAP provision which provides that when the taxpayer considers that the action of one or both Contracting Parties results or will result in taxation not in accordance with the provisions of the tax treaty, the taxpayer may, irrespective of the remedies provided by the domestic law of those Contracting Parties, make a request for MAP assistance, and that the taxpayer can present the request within a period of no less than three years from the first notification of the action resulting in taxation not in accordance with the provisions of the tax treaty. Out of Spain's 92 tax treaties, 11 do not contain a provision that is equivalent to Article 25(1) of the OECD Model Tax Convention. Out of these 11 tax treaties:
Some of these tax treaties that do not contain such equivalent will be modified via the MLI, therefore, the recommendation is to ratify the MLI as quickly as possible. Further, the recommendation is that Spain should request the inclusion of the access to MAP provision via bilateral negotiations in those treaties that will not be modified via the MLI and in all future treaties to come. Allow submission of MAP requests to the competent authority of either treaty partner, or, alternatively, introduce a bilateral consultation or notification process None of the tax treaties signed by Spain allow taxpayers to submit a MAP request to the competent authority of either treaty partner. Further, no modification will take place via the MLI since Spain has reserved the right for this to apply to its Covered Tax Agreements. Notwithstanding the above, Spain recognizes that it applies a notification and consultation process whereby the competent authority will strive at reaching a coordinated solution with the other competent authority when the objection raised in a MAP request is not justified and when the tax treaty concerned does not contain Article 25(1) of the OECD Model Tax Convention. In this regard, the peer review report recommends to continue applying this notification and consultation process. Considering that Spanish MAP guidance foresees access to MAP for transfer pricing cases, the peer review report recommends to continue granting access for these cases. Currently, Spanish MAP guidance stipulates that access to MAP may be denied where there is proof that the taxpayer intended to avoid taxes. When the OECD required a clarification, Spain stated that this provision is not automatic and since 1 January 2016 has not denied access to MAP cases concerning the application of treaty anti-abuse provision. The peer review report recommends that Spanish MAP guidance should be amended in such a way so it expressly states that access to MAP should be granted in cases where anti-abuse provisions are being applied and that Spain continues granting access for these cases. The peer review report recognizes that currently Spain's MAP guidance does not include explicit confirmation that access to MAP should be granted in cases of audit settlements (actas con acuerdo) but that Spain so far has granted access to MAP requests for these cases. The peer review recommends that Spain continues granting access to MAP in all eligible cases, even if there was an agreement reached between the taxpayer and the tax authority. The peer review report recommends that Spain should continue not to limit access to MAP in eligible cases when taxpayers have complied with information and documentation requirements for MAP requests, as specified by Spain's MAP guidance. Pursuant to this provision, jurisdictions should ensure that their tax treaties contain a provision under which competent authorities may consult together for the elimination of double taxation in cases not provided for in their tax treaties. Out of Spain's 92 tax treaties, 68 do not contain a provision that is equivalent to Article 25(3), second sentence of the OECD Model Tax Convention. Four of these six tax treaties that do not contain such equivalent would be modified via the MLI, therefore, the recommendation is to ratify the MLI as quickly as possible. For the remaining two tax treaties and for all future tax treaties to come, the recommendation is that Spain should request this provision via bilateral negotiations. The peer review report considers that Spain should amend its MAP guidance in such a way to include contact details of Spain's competent authority. Additionally, although not part of Action 14 on improving tax dispute resolution mechanisms, in order to further improve the level of clarity, the peer review determines that Spain could consider including in its MAP guidance the following:
Spain's MAP guidance can be found on the Official Gazette webpage. The peer review report recommends that Spain should ensure that future updates of its MAP guidance are made publically available and easily accessible. Further, the MAP profile, which is published in the website of the OECD, should be updated if needed. As already mentioned, Spain's MAP guidance does not include explicit information on access to MAP in the case of audit settlements, therefore the peer review report recommends that Spain's MAP guidance is amended in such a way to expressly state that audit settlements do not preclude access to MAP. Pursuant to this provision, jurisdictions should ensure that their tax treaties contain a provision which requires that the competent authority who receives a MAP request from the taxpayer, shall endeavor, if the objection from the taxpayer appears to be justified and the competent authority is not itself able to arrive at a satisfactory solution, to resolve the MAP case by mutual agreement with the competent authority of the other Contracting Party, with a view to the avoidance of double taxation which is not in accordance with the tax treaty. None of the 92 Spanish tax treaties contain a provision that is equivalent to Article 25(2), first sentence, of the OECD Model Tax Convention. As no modification will take place via the MLI, the peer review report recommends Spain to include the required provision via bilateral negotiations. Further, Spain should maintain its stated intention to include such provision in all future tax treaties to come. Spain's MAP statistics point out that during the Statistics Reporting Period (defined as the period that started on 1 January 2016 and finished on 31 December 2016), Spain closed 7.06% (6 out of 85 cases) of MAP requests submitted on or after 1 January 2016 in 5.42 months on average. In that regard, Spain is recommended to seek to resolve the remaining 79 cases pending on 31 December 2016 within a timeframe that results in an average time frame of 24 months for all MAP requests submitted on or after 1 January 2016. The peer review report considers that the Spanish competent authority is not adequately resourced on the grounds that the pursued 24-month average timeframe for resolving MAP cases received on or after 1 January 2016 has not been reached. Based on the above, the peer review report recommends that Spain should closely monitor whether the current resources provided to the MAP function, as well as the additional resources envisaged to be provided in the near future and the scheduled increase of face-to-face meetings, will contribute to the resolution of MAP cases in a timely, efficient and effective manner. Ensure staff in charge of MAP has the authority to resolve cases in accordance with the applicable tax treaty Considering that Spain reported that staff in charge of MAP in practice operates independently and has the authority to resolve MAP cases without being dependent on the approval/direction of the tax administration personnel directly involved in the adjustment nor in the process for negotiating MAP agreements influenced by policy considerations, the recommendation laid down in the peer review report is continuing to ensure that the above applies. Considering that the performance indicators used by Spain (the number of MAP cases resolved and the time taken to resolve them) are in accordance with BEPS Action 14, the report considers them as appropriate and recommends Spain to continue using them in the future. Include Article 25(2), second sentence, of the OECD Model Tax Convention in tax treaties or alternative provisions in Article 9(1) and Article 7(2) Pursuant to this provision, jurisdictions should either: (i) provide in their tax treaties that any mutual agreement reached through MAP shall be implemented notwithstanding any time limits in their domestic law; or (ii) be willing to accept alternative treaty provisions that limit the time during which a Contracting Party may make any adjustment pursuant to Article 9(1) or Article 7(2), in order to avoid late adjustments with respect to which MAP relief will not be granted. Out of Spain's 92 tax treaties, 26 do not contain a provision that is equivalent to Article 25(2), second sentence of the OECD Model Tax Convention nor the alternative provisions of in Article 9(1) and Article 7(2). As 12 tax treaties9 would be amended via the MLI, the recommendation is to ratify the MLI as quickly as possible. As regards the remaining 14 tax treaties10 and in all future tax treaties, Spain should request the inclusion of the required provision via bilateral negotiations or be willing to accept the inclusion of both alternative provisions (i.e., Article 9(1) and Article 7(2)). Further, out of the 92 tax treaties, the treaty related to Finland contains a provision that is equivalent to Article 25(2), second sentence of the OECD Model Tax Convention but is not yet in force, therefore the recommendation is to ratify this tax treaty as quickly as possible. As regards the implementation of MAP agreements, although the report recognized that Spain has implemented all MAP agreements so far, the recommendation is to ensure that in the absence of the required provisions (Article 25(3), 9(1) or 7(2)) implementation of MAP agreements is not obstructed by time limits in Spanish domestic law. Finally, the report recommends that Spain continue implementing all MAP agreements on a timely basis (three-month period), if the conditions for such implementation are fulfilled. Spain is already working to address deficiencies identified in its peer review and will now move on to Stage 2 of the process, where Spain's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. Under the peer review program methodology, Spain shall submit an update report to the FTA's MAP Forum within one year of the OECD Committee on Fiscal Affairs' adoption of the Stage 1 peer review report. In a post-BEPS world, where multinational enterprises (MNEs) face tremendous pressures and scrutiny from tax authorities, the release of Spain's peer review report represents the continued recognition and importance of the need to achieve tax certainty for cross-border transactions for MNEs. While increased scrutiny is expected to significantly increase the risk of double taxation, the fact that tax authorities may be subject to review by their peers should be seen by MNEs as a positive step to best ensure access to an effective and timely mutual agreement process. Furthermore, the peer review for Spain provides insights to taxpayers on the availability and efficacy of MAP. With additional countries continuing to be reviewed, the OECD has made it known that taxpayer input continues to be welcomed on an ongoing basis. With stakeholder feedback in mind, businesses are encouraged to share their views with the OECD on the peer review for Spain and any other jurisdictions, and to perhaps comment on whether the next iteration of the OECD's assessment of tax administration's MAP performance warrants greater feedback from taxpayers as the primary source. Feedback from the international tax community is the logical next step after peer review, which may help to further validate the current favorable result. 1 See EY Global Tax Alert, OECD releases third batch of peer review reports on Action 14, dated 14 March 2018. 2 See Spain's minimum standards peer review report, dated 12 March 2018. 3 See EY Global Tax Alert, OECD releases BEPS Action 14 on More Effective Dispute Resolution Mechanisms, Peer Review, dated 31 October 2016. 8 Australia, Belgium, Chile, Ecuador, Mexico and the treaty with the former USSR that Spain continues to apply Kyrgyzstan, Tajikistan, Turkmenistan and Ukraine. 9 Australia, Belgium, Bulgaria, Chile, Hungary, Ireland, Italy, Korea, Poland, Portugal, United Kingdom and the treaty with the former Czechoslovakia that Spain continues to apply to the Czech Republic and the Slovak Republic. 10. Document ID: 2018-5422 |
