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20 March 2018 OECD releases Norway 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 Norway was among the assessed jurisdictions in the third batch. Overall the report concludes that Norway meets most of the elements of the Action 14 minimum standard. In the next stage of the peer review process, Norway'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.2 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 a number of recommendations relating to the minimum standard. In general, the performance of Norway with regard to MAP has proven to be satisfactory in their respective reports. Overall, Norway meets most of the elements of the Action 14 minimum standard. Norway has in place a total of 89 tax treaties. Article 25(3), first sentence, of the OECD Model Tax Convention (OECD MTC 2015) requires the treaty's competent authorities to endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the applicable tax treaty. Of Norway's 89 tax treaties, 84 contain a provision equivalent to Article 25(3), first sentence. The remaining five treaties do not contain a provision that is equivalent to Article 25(3), first sentence. Regarding the abovementioned five tax treaties, Norway did not list any of them as a covered tax agreement under the Multilateral Instrument (MLI). Therefore, the MLI will, upon entry into force, not modify any of the five tax treaties above to include the equivalent of Article 25(3), first sentence, of the OECD MTC 2015. Article 25(1), first sentence, of the OECD MTC 2015, as changed by the Action 14 final report, allows taxpayers to submit a MAP request to the competent authority of either treaty state. Sixty-four tax treaties contain a provision equivalent to Article 25(1), first sentence, of the OECD MTC 2015 prior to the Action 14 final report. Article 25(1), second sentence, of the OECD MTC 2015 allows taxpayers to submit a MAP request within a period of three years from the first notification. With the signing of the MLI, Norway opted to introduce in all of its tax treaties, a provision that is equivalent to Article 25(1), first sentence, of the OECD MTC 2015 as amended by the Action 14 final report. Seventeen of Norway's tax treaties will, upon entry into force, be modified by the MLI to allow taxpayers to submit a MAP request to the competent authority of either treaty partner. Article 9(2) of the OECD MTC 2015 requires the competent authorities to make a corresponding adjustment in case a transfer pricing adjustment is made by the treaty partner. Only 29 of Norway's treaties contain a provision equivalent to Article 9(2) of the OECD MTC 2015. Norway indicated that it will always provide access to MAP for transfer pricing cases and is willing to make corresponding adjustments, regardless of whether the tax treaty contains an equivalent to Article 9(2) and irrespective of whether domestic legislation enables such granting. Article 25(3), second sentence, of the OECD MTC 2015 allows the competent authorities to consult together for eliminating double taxation in cases not provided for in the tax treaties. Seventy-three of Norway's tax treaties contain a provision equivalent to Article 25(3), second sentence. Article 25(2), first sentence, of the OECD MTC 2015 requires the competent authority to undertake procedures for mutual agreement with the competent authority of the other treaty partner. Eighty-four treaties contain a provision equivalent to Article 25(2), first sentence. Norway's competent authority did not resolve MAP cases on average within a timeframe of 24 months, which is the pursued average for resolving MAP cases received on or after 1 January 2016. The average time necessary during the Statistics Reporting Period was 29.87 months. It is reported that Norway's competent authority resolves MAP cases in accordance with the applicable tax treaty. It is not dependent on the approval or direction of the tax administrations personnel who made the adjustments at issue. Peers generally did not indicate experiencing any issues with the timely resolution of MAP cases involving Norway. However, two peers reported having experienced difficulties in receiving responses and position papers from Norway's competent authority in a timely manner. The report notes that Norway meets the Action 14 minimum standard for the implementation of MAP agreements. It is reported that Norway will implement all agreements reached in MAP discussions both for upward and downward adjustments of taxpayers' positions. The relevant taxpayer's approval to the agreement reached is a prerequisite for Norway's implementation of the MAP agreement. Norway is already working to address deficiencies identified in its peer review and will now move on to Stage 2 of the process, where Norway's efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. Under the peer review program methodology, Norway shall submit an update report to the Forum on Tax Administration'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 Norway'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 Norway 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 Norway 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 EY Global Tax Alert, OECD releases BEPS Action 14 on More Effective Dispute Resolution Mechanisms, Peer Review, dated 31 October 2016. Document ID: 2018-5436 |
